Might ambiguity exist when none seems to exist?

Mina Mahmoudi, Mark Pingle and Rattaphon Wuthisatian

Chapter 25 in Handbook of Research Methods in Behavioural Economics, 2023, pp 428-442 from Edward Elgar Publishing

Abstract: It is standard to assume people making an uncertain choice experience no ambiguity when they know the probabilities that actually apply to the possible outcomes. However, bounded rationality, among other possible factors, may effectively create ambiguity in such cases. This chapter examines data from an experiment that allows us to compare decision behaviour under total ambiguity with that under ‘no ambiguity’. The experimental evidence indicates people experience ambiguity even when none seems to be present, and the ambiguity biases decision behaviour in a systematic way. In particular, it makes prospects with an intermediate variance level particularly attractive, and it makes high variance prospects more attractive than they otherwise would be.

Keywords: Economics and Finance; Research Methods (search for similar items in EconPapers)
Date: 2023
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