Causes of ambiguity aversion: Known versus unknown preferences

Stefan T. Trautmann · Ferdinand M. Vieider · Peter P. Wakker

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Decision-Making and Behavioral Economics Economic and Environmental Valuation Experimental Behavioral Economics Studies

Abstract

Ambiguity aversion appears to have subtle psychological causes. Curley, Yates, and Abrams found that the fear of negative evaluation by others (FNE) increases ambiguity aversion. This paper introduces a design in which preferences can be private information of individuals, so that FNE can be avoided entirely. Thus, we can completely control for FNE and other social factors, and can determine exactly to what extent ambiguity aversion is driven by such social factors. In our experiment ambiguity aversion, while appearing as commonly found in the presence of FNE, disappears entirely if FNE is eliminated. Implications are discussed.

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References

1961Risk, Ambiguity, and the Savage Axioms 1969Measurement of social-evaluative anxiety.1991Investor Diversification and International Equity Markets 1999Accounting for the effects of accountability.1983A Brief Version of the Fear of Negative Evaluation Scale 2000The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?1989Choice Based on Reasons: The Case of Attraction and Compromise Effects 1992Recent developments in modeling preferences: Uncertainty and ambiguity

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