The role of intuition and reasoning in driving aversion to risk and ambiguity

Luigi Guiso, Tullio Jappelli () and Jeffrey Butler

No 8334, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Using a large sample of retail investors as well as experimental data we find that risk and ambiguity aversion are positively correlated. We show the common link is decision style: intuitive thinkers tolerate more risk and ambiguity than effortful reasoners. One interpretation is that intuitive thinking confers an advantage in risky or ambiguous situations. We present supporting lab and field evidence that intuitive thinkers outperform others in uncertain environments. Finally, we find that risk and ambiguity aversion vary with individual characteristics and wealth. The wealthy are less risk averse but more ambiguity averse, which has implications for financial puzzles.

Keywords: Risk aversion; Risk ambiguity; Decision theory; Dual systems; Intuitive thinking (search for similar items in EconPapers)
JEL-codes: D81 D83 (search for similar items in EconPapers)
Date: 2011-04
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: The role of intuition and reasoning in driving aversion to risk and ambiguity (2014)
Working Paper: The Role of Intuition and Reasoning in Driving Aversion to Risk and Ambiguity (2013)
Working Paper: The role of intuition and reasoning in driving aversion to risk and ambiguity (2011)
Working Paper: The role of intuition and reasoning in driving aversion to risk and ambiguity (2011)
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