Ambiguity Attitudes over Time

Abstract

Abstract Previous research demonstrates that individuals exhibit a stronger level of ambiguity aversion for high probabilities than for low probabilities. Given that risky and ambiguous prospects are often unresolved until a future date (e.g., investment decisions, new product launches, and medical interventions), this study examines the impact of time on ambiguity preferences at different probability levels. Our experimental results indicate that although ambiguity preferences for low‐probability events remain constant, a robust effect of time occurs for high‐probability events. More specifically, temporal distance mitigates ambiguity aversion. This effect is consistent for different elicitation methods (preference rating and probability–ambiguity trade‐off tasks). We propose a dual‐process model (affective versus cognitive processing styles) to explain our results. Affective processing for high‐probability lotteries resolved in the current period increases ambiguity aversion, while cognitive processing leads to less ambiguity‐averse choices for future lotteries. Copyright © 2015 John Wiley & Sons, Ltd.

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