Information Gaps for Risk and Ambiguity

Abstract

We apply a model of preferences for information to the domain of decision making under risk and ambiguity. An uncertain prospect exposes an individual to an information gap. Gambling makes the missing information more important, attracting more attention to the information gap. To the extent that the uncertainty (or other circumstances) makes the information gap unpleasant to think about, an individual tends to be averse to risk and ambiguity. Yet when an information gap happens to be pleasant, an individual may seek gambles providing exposure to it. The model provides explanations for source preference regarding uncertainty, the comparative ignorance effect under conditions of ambiguity, aversion to compound risk, and other phenomena. We present an empirical test of one of the model's novel predictions.

Extreme malleability of preferences: Absolute preference sign changes under uncertainty

“…Downside risks are perceived as risky and are avoided, but upside risks can be exciting (cf. also Golman, Loewenstein, & Gurney, ).…”

“…Stable risk preferences are not only assumed in neoclassical utility models, even prospect theory (Tversky & Wakker, 1995) Downside risks are perceived as risky and are avoided, but upside risks can be exciting (cf. also Golman, Loewenstein, & Gurney, 2016).…”

Vicarious Goal Pursuit Outweighs Herding in Crowdfunding: Evidence from Kickstarter.com

“…One such alternative explanation is that some backers enjoy betting on the success of Kickstarter projects and thus derive more utility from supporting a project before rather than after it reaches its funding goal. These backers may obtain additional utility from resolving the uncertainty about whether they have made a right bet-an information gap that is pleasant to think about (Golman et al 2015)-or from demonstrating their competence (in this case, via making a right bet), a fundamental human motive (Dweck 1986). Another alternative explanation is that backers may feel a greater sense of agency and ownership toward a project if they contribute to the project before rather than after it reaches its funding goal.…”

Investigating Uncertainty in Digital Games and its Impact on Player Immersion

“…The above aruments clearly support Costikyan's line of thought adding validity to the sources of uncertainty. Furthermore, Golman et al [11] say that people are attracted to uncertainty, with the unknown being enjoyable and Berlyne [2] has discussed curiosity in context of play providing additional weight. However, what is unclear is if all of the above described experiences are the same feeling, and whether those experiences converge or diverge in their contribution to enjoyment or not.…”