An empirical evaluation of descriptive models of ambiguity reactions in choice situations

Abstract

Ambiguity is uncertainty about an option's outcome-generating process, and is characterized as uncertainty about an option's outcome probabilities. Subjects, in choice tasks, typically have avoided ambiguous options. Descriptive models are identified and tested in two studies which had subjects rank monetary lotteries according to preference. In Study 1, lotteries involved receiving a positive amount or nothing, where P denotes the probability of receiving the nonzero amount. Subjects were willing to forego expected winnings to avoid ambiguity near P = SO and P = .75. Near P = .25, a significant percentage of subjects exhibited ambiguity seeking, with subjects, on average, willing to forego expected winnings to have the more ambiguous option. The observed behavior contradicts the viability of a proposed lexicographic model. Study 2 tested four polynomial models using diagnostic properties in the context of conjoint measurement theory. The results supported a sign dependence of ambiguity with respect to the probability level P, such that subjects' preference orderings over ambiguity reversed with changes in P. This behavior was inconsistent with all the three-factor polynomial models investigated. Further analyses failed to support a variant of portfolio theory, as well. The implications of these results for the descriptive modeling of choice under ambiguity are discussed.

Self-serving interpretations of ambiguity in other-regarding behavior

“…Thus, people prefer to bet on a lottery involving 10 red and 10 blue chips over betting on either color in a lottery involving an unknown combination of 20 red and blue chips, and are often willing to pay a premium for the unambiguous lottery (Curley et al, 1989; see also Sarin and Weber, 1993;Ho et al, 2002;Hsu et al, 2005). In fact, such "ambiguity aversion" is referred to as one of the most prominent violations of expected utility theory (Camerer and Weber, 1992), 3 and has led to models in which the value of (or expectation of favorable outcomes in) gambles involving ambiguity is lower than when distributions are defined more precisely (Einhorn and Hogarth, 1986;Sarin and Wakker, 1998;Schmeidler, 1989;Ghirardato and Marinacci, 2002).…”

“…3 There are a few situations in which ambiguity is preferred. Curley and Yates (1989) found ambiguity seeking at low probabilities. Heath and Tversky (1991) found that when people feel confident they prefer to bet on their judgment over a lottery with a probability equal to their confidence, which reflects a preference for the inherently more ambiguous option.…”

The Ellsberg 'Problem' and Implicit Assumptions under Ambiguity

“…The vast majority of empirical evidence has demonstrated that people indeed have a strong preference for A over B and for D over C (see Becker & Brownson, 1964;Slovic & Tversky, 1974;MacCrimmon & Larsson, 1979; for the twocolor version see Raiffa, 1961;Yates & Zukowski, 1976;Kahn & Sarin, 1988;Curley & Yates, 1989;Eisenberger & Weber, 1995). In addition to the investigation of this original version, this tendency against ambiguity in decision making has been tested under different conditions (for an extensive review, see Camerer & Weber, 1992).…”

Perceived Ambiguity about Screening Mammography Recommendations: Association with Future Mammography Uptake and Perceptions

“…For example, people have been found to show ''ambiguity aversion'' (i.e., when ambiguity is high, they pessimistically appraise the risks and benefits of action and avoid decision making; refs. [23][24][25][26][27]. Perceived ambiguity about the efficacy of a cancer-protective intervention, then, would be expected to lower perceptions of the intervention's efficacy, reduce interest in the intervention, and increase feelings of vulnerability to adverse outcomes.…”