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When Risk Is Weird: Unexplained Transaction Features Lower Valuations

Management Science, Forthcoming

24 Pages Posted: 10 Jun 2017 Last revised: 19 Jun 2017

Robert Mislavsky

University of Pennsylvania - The Wharton School

Uri Simonsohn

University of Pennsylvania - The Wharton School

Date Written: June 9, 2017

Abstract

We define transactions as weird when they include unexplained features, that is, features not implicitly, explicitly, or self-evidently justified, and propose that people are averse to weird transactions. In six experiments, we show that risky options used in previous research paradigms often attained uncertainty via adding an unexplained transaction feature (e.g., purchasing a coin flip or lottery), and behavior that appears to reflect risk aversion could instead reflect an aversion to weird transactions. Specifically, willingness to pay drops just as much when adding risk to a transaction as when adding unexplained features. Holding transaction features constant, adding additional risk does not further reduce willingness to pay. We interpret our work as generalizing ambiguity aversion to riskless choice.

Keywords: transaction features, weirdness, risk aversion, ambiguity aversion, uncertainty effect

JEL Classification: D80, M30, M31

Suggested Citation

Mislavsky, Robert and Simonsohn, Uri, When Risk Is Weird: Unexplained Transaction Features Lower Valuations (June 9, 2017). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2983852

Robert Mislavsky (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Uri Simonsohn

University of Pennsylvania - The Wharton School ( email )

3730 Walnut Street
JMHH 500
Philadelphia, PA 19104-6365
United States

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