The Aversion to the Sequential Resolution of Uncertainty

Ignacio Palacios-Huerta

Journal of Risk and Uncertainty, 1999, vol. 18, issue 3, 249-69

Abstract: This paper sets forth and offers an explanation for preferences for the form of the timing of resolution of uncertainty: namely for uncertainty to be resolved all at one time rather than sequentially. The explanation is based on a weakening of the independence axiom, in particular on the notion of disappointment aversion developed in Gul's (1991) axiomatic model of preferences. Implications of this aversion are discussed for issues in finance, intertemporal decision making under uncertainty, high stakes risky situations and consumer self-regulation. The analysis encourages a formulation of preferences over all attributes of interest to the decision maker, including psychological satisfaction. Copyright 1999 by Kluwer Academic Publishers

Date: 1999
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