The effects of endowment on the demand for probabilistic information

Mercè Roca and A. John Maule

Organizational Behavior and Human Decision Processes, 2009, vol. 109, issue 1, pages 56-66

Abstract: Research shows that individuals are ambiguity averse: they choose unambiguous over equivalent ambiguous prospects and price them higher (either as buyers or sellers). Moreover, it is often assumed that ambiguity averse individuals are willing to pay an ambiguity premium for information that reduces ambiguity [Camerer, C. F., & Weber, M. (1992). Recent developments in modeling preferences: Uncertainty and ambiguity. Journal of Risk and Uncertainty, 5(4), 325-370]. However, when people are asked to exchange an ambiguous alternative in their possession for an equivalent unambiguous one, they prefer to retain the former [Roca, M., Hogarth, R. M., & Maule, A. J. (2006). Ambiguity seeking as a result of the status quo bias. Journal of Risk and Uncertainty, 32(3), 175-194]. We present three experiments investigating the economic effects of endowment on attitudes towards ambiguity and the ambiguity premium. The experiments, based on a [Becker, G., DeGroot, M., & Marschak, J. (1964). Measuring utility by a single-response sequential method. Science, 9, 3] procedure, show that the value attributed to ambiguity reducing information is substantially affected by the status quo of the individual.

Keywords: Ambiguity; Risk; Endowment; effect; Decision; making; Uncertainty (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:jobhdp:v:109:y:2009:i:1:p:56-66

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