Risk, Ambiguity, and Decision Choice: Some Additional Evidence*

Abstract

This paper extends prior research by jointly assessing the roles of risk attitude and tolerance for ambiguity in predicting choice. An experiment examined the effects of these variables on decisions made in four different scenarios. The four scenarios (treatment combinations) were generated by manipulating risk and ambiguity into two levels (high and low). The context was defined in terms of a sample size selection problem. The second issue explored was the effect of attitudes toward risk and ambiguity on decision confidence.The results indicate that (1) both risk attitude and ambiguity intolerance determined choice behavior, (2) the roles of these individual attitudes depend on the levels of the two treatment variables of risk and ambiguity, (3) the presence of ambiguity accentuates the perception of risk in individual subjects, and (4) decision makers who are less risk averse, and have more tolerance for ambiguity, display greater confidence in their choice. The paper discusses some of the managerial implications of the results.

Ambiguity Aversion in the Field of Insurance: Insurers’ Attitude to Imprecise and Conflicting Probability Estimates

“…respondents were neither tolerant nor intolerant). Gosh and Ray (1997) also obtained a mean value of 50 with the same scale using MBA students.…”

Seed for change : the making and implementation of seed policies in Ethiopia

“…Decision makers are also confronted with competing and even conflicting policy objectives, which make it difficult to choose one. When objectives are competing and/or conflicting, individuals tend to be ambiguity-averse and shy away from making a decision, not only because of ignorance of the outcome of a particular decision, but also to minimize risk (Camerer and Weber 1992;Ghosh and Ray 1997). Thus, decision making can be ignored when the decision maker is ambivalent about choices, leading to non-decision making.…”

Exploring Risk Perception and Degree of Internationalization of Brazilian Small-and-Medium Enterprises

“…As suggested by previous literature (Acedo & Florin, 2006;Halikias & Panayotopoulou, 2003), tolerance for ambiguity, that is the extent to which managers are able to deal with ambiguous and uncertain situations, may predict managers' behavior regarding the perception of risk (Ghosh & Ray, 1997). However, their preference for a deliberative or intuitive cognitive style is also a factor that deserves to be further explored in the relationship between risk perception and SME internationalization (Barbosa, Gerhardt, & Kickul, 2007).…”