The Uncertain Value of Uncertainty: When Consumers are Unwilling to Pay for What They Like

69 Pages Posted: 27 Oct 2015 Last revised: 19 Jul 2019

See all articles by Alice Moon

Alice Moon

The Wharton School

Leif D. Nelson

University of California, Berkeley - Haas School of Business

Date Written: March 14, 2019

Abstract

Do people have an irrational dislike for risk? People pay less for uncertain prospects than their worst possible outcomes (Gneezy, List, and Wu 2006), and researchers have proposed that this effect occurs because people strongly dislike risk. We challenge this proposition across seven studies. Though people seem to irrationally dislike risky prospects when preference is assessed with open-ended pricing measures, such as willingness-to-pay, people display rational responses toward risky prospects when preference is assessed using rating measures, such as ratings of expected enjoyment. This discrepancy does not seem to arise because these measures: (a) focus on different components of the uncertainty, (b) rely on context-dependent versus normed scales, or (c) involve voluntarily opting into an uncertain situation. Accordingly, we find that people also display rational responses toward risky prospects with time measures (i.e., willingness-to-wait and anticipated time usage), and choice. We discuss alternative explanations and crucial implications of our effects for both theory and application.

Keywords: Willingness-to-pay, Enjoyment, Uncertainty, Measurement, Preference

JEL Classification: M30, M31

Suggested Citation

Moon, Alice and Nelson, Leif D., The Uncertain Value of Uncertainty: When Consumers are Unwilling to Pay for What They Like (March 14, 2019). Available at SSRN: https://ssrn.com/abstract=2676699 or http://dx.doi.org/10.2139/ssrn.2676699

Alice Moon (Contact Author)

The Wharton School ( email )

Jon M. Huntsman Hall
3730 Walnut St
Philadelphia, PA 19104
United States

Leif D. Nelson

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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