41 Pages Posted: 3 Nov 2011 Last revised: 19 Aug 2014
Date Written: November 3, 2011
When the precise risk probability or consequence of a hazard is not known, as is the case with many online and security hazards, it is not clear how people evaluate the attendant risk. Based on research in the area of decision theory, we conjecture that in such situations, people first form a judgment of how much is knowable in order to make a decision. This subjective perception of knowability induces a state of mind or a knowledge state in a person, which is then used by the person to frame a decision. We categorize a person’s state of knowledge about the decision domain as belonging to one of four states: certainty, known uncertainty or risk, unknown uncertainty, and unknowable uncertainty.
In the context of a consumer purchasing online, we study a hazard about which arguably little objective information is available about likelihood or consequence viz., identity theft. We use an experiment to study the effect of knowability and hence the induced knowledge state on a person’s aversion to identity theft. Results suggest that i) subjects are willing to pay more to avoid unknown and unknowable uncertainties compared to the cases of certainty or risk, ii) subjects judge perceived losses to be higher under uncertainty conditions compared to risk, iii) subjects are not willing to pay proportionally higher premiums to avoid higher perceived losses under uncertainty, and, iv) tentatively, subjects seem to harbor a “lingering doubt” about ICT hazards. We suggest that research on uncertainty is relevant to the study of ICT hazards.
Keywords: Online hazards, ambiguity, uncertainty, ambiguity premium, knowledge state, unknown uncertainty, unknowable uncertainty
Suggested Citation: Suggested Citation
Nyshadham, Easwar A. and Ping, Wang, Uncertainty and Knowledge of Online Hazards: An Experimental Study (November 3, 2011). Available at SSRN: https://ssrn.com/abstract=1953927 or http://dx.doi.org/10.2139/ssrn.1953927