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

Jeffrey Butler, Luigi Guiso and Tullio Jappelli ()

No 1107, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

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.

Pages: 48 pages
Date: 2011, Revised 2011-10
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-neu and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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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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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1107

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