The influence of anchoring on the uncertainty effect

Abstract

The uncertainty effect suggests that people may violate fundamental economic theories by pricing a binary lottery below its lowest outcome. This article examines the effect of anchoring on the uncertainty effect in a simple monetary binary lottery. We asked participants in an experiment about their willingness to pay in a simple lottery embedded with a numerical anchor. The results show that low (high) numerical anchoring exacerbates (ameliorates) the irrational behaviour causing the uncertainty effect.

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