Words or Numbers? How Framing Uncertainties Affects Risk Assessment and Decision-Making

Robin Bodenberger and Kirsten Thommes

Papers from arXiv.org

Abstract: The communication of uncertainties needs to be as precise as possible to enable the receiver of risk-messages to adapt their behavior appropriately. However, the communication of uncertainties comes with its own set of challenges as most senders prefer to communicate uncertainty through verbal probability phrases (e.g., likely) - a communication form characterized by its ambiguity and (framed) directionality. While it is well known that receivers often do not translate such phrases into the numerical probability intended by the sender, it is less clear how this discrepancy influences subsequent behavioral actions. By implementing a laboratory experiment, we show that individuals value uncertain options with medium to high likelihoods significantly lower when uncertainty is communicated verbally rather than numerically. This effect may lead to less rational decisions under verbal communication, particularly at high likelihoods. Those results remain consistent even if individuals translate verbal uncertainty correctly into the associate numerical uncertainty, implying that a biased behavioral response is not only induced by mistranslations. Instead, ambiguity about the exact meaning of a verbal phrase interferes with decision-making even beyond mere mistranslations. These findings tie in with previous research on ambiguity aversion, which has predominantly operationalized ambiguity through numerical ranges rather than verbal phrases. We conclude that managers and firms should carefully consider the impact of uncertainty framing on employees' decision-making and customer purchasing behavior, opting for numerical probabilities when possible.

Date: 2025-02, Revised 2025-02
New Economics Papers: this item is included in nep-cbe and nep-exp
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