Pessimistic outcome expectancy does not explain ambiguity aversion in decision-making under uncertainty

Abstract

When faced with a decision, most people like to know the odds and prefer to avoid ambiguity. It has been suggested that this aversion to ambiguity is linked to people’s assumption of worst possible outcomes. We used two closely linked behavioural tasks in 78 healthy participants to investigate whether such pessimistic prior beliefs can explain ambiguity aversion. In the risk-taking task, participants had to decide whether or not they place a bet, while in the beliefs task, participants were asked what they believed would be the outcome. Unexpectedly, we found that in the beliefs task, participants were not overly pessimistic about the outcome in the ambiguity condition and in fact closer to optimal levels of decision-making than in the risk conditions. While individual differences in pessimism could explain outcome expectancy, they had no effect on ambiguity aversion. Consequently, ambiguity aversion is more likely caused by general caution than by expectation of negative outcomes despite pessimism-dependent subjective weighting of probabilities.

When do consumers favor overly precise information about investment returns?

“…Moreover, participants did not expect higher returns from precise forecasts, which suggests that they do not favor them because they anchor on the lower end of the range rather than the midpoint (i.e., the precise forecast), and, in comparison, perceive ranges as a loss. This in line with findings that people are not averse to ambiguous probabilities because they expect a pessimistic outcome (Ahrends et al, 2019). If precise forecasts give confidence to consumers, it is not because they expect them to yield higher returns.…”

“…Experts and business students expect similar returns following precise and range forecasts (Atiase et al, 2005; Du, 2009; Libby et al, 2006), although we do not yet know what the average consumer expects. If range forecasts act like range probabilities, consumers would not expect worse outcomes from range forecasts (Ahrends et al, 2019), but this ought to be tested in an investment context where people might expect worse outcomes than in a card game task. A recent article finds that when judging whether previous range forecasts were correct, consumers do not systematically focus on either the lower or higher end of ranges (Pena-Marin & Bhargave, 2022), although it is not clear whether this is also the case when making decisions based on forecasts.…”

Desigualdad de la incertidumbre económica subjetiva y perspectivas económicas individuales durante la pandemia

“…Por otro lado, la edad no parece incidir sobre la incertidumbre subjetiva que manifiestan los entrevistados sobre sus ingresos futuros. Ahrends et al (2019) demuestran que el pesimismo sobre las expectativas de un resultado no explica la aversión a la ambigüedad en la toma de decisiones bajo incertidumbre. Por su parte, Sproten et al (2018) señalan que en situaciones de ambigüedad las personas mayores tienden a estimar la probabilidad de ganar de forma más realística que los jóvenes gracias a su experiencia.…”

Ambiguous Sticks and Carrots: The Effect of Contract Framing and Payoff Ambiguity on Employee Effort

“…In the classic paradigm, undesirability (desirability) is induced by penalizing (rewarding) participants when a certain card is drawn from a deck. The results from a number of studies in this paradigm show that, compared to a neutral condition, penalties decrease participants' propensity to believe the card will be drawn, while rewards increase this propensity (Marks 1951;Irwin 1953;Windschitl et al 2010;Ahrends, Bravo, Kringelbach, Vuust, and Rohrmeier 2019). These results hold even when participants receive large payments for accurate predictions and for naturalist events related to weather and sporting events (Muren 2012;Simmons and Massey 2012).…”