The center and range of the probability interval as factors affecting ambiguity preferences

Abstract Ambiguous decision situations are characterized as having probabilities that are uncertain. The uncertainty is due to the common, real-world deficiency of information about the process by which the outcomes are determined. Thirty lotteries having uncertain probabilities were constructed by varying the centers and the ranges of the intervals within which the imprecise probabilities of winning could lie. Pairs of the lotteries were presented as choice alternatives to subjects, with each pair having lotteries with the same interval center but differing interval ranges. Ambiguity avoidance, the selection of the less ambiguous option, was found to increase with the interval center C , with ambiguity indifference occurring for values of C ⩽ 0.40. No evidence of ambiguity seeking as the prevalent behavior was obtained. Ambiguity avoidance did not significantly increase with the interval range R , but an interaction effect between C and the ranges R 1 and R 2 of the choice pair was obtained. This effect of the ranges could not be described simply by knowledge of the difference R 1 − R 2 ; knowledge of both individual values was necessary. The theoretical implications of these results are discussed.

[1]  M. Degroot,et al.  Measuring utility by a single-response sequential method. , 1964, Behavioral science.

[2]  N. Sahlin,et al.  The role of second-order probabilities in decision making , 1983 .

[3]  A. Tversky,et al.  Prospect Theory : An Analysis of Decision under Risk Author ( s ) : , 2007 .

[4]  A. Tversky,et al.  Prospect theory: analysis of decision under risk , 1979 .

[5]  Nils-Eric Sahlin,et al.  Decision making with unreliable probabilities , 1983 .

[6]  J. Frank Yates,et al.  Characterization of Ambiguity in Decision Making. , 1976 .

[7]  S. Becker,et al.  What Price Ambiguity? or the Role of Ambiguity in Decision-Making , 1964, Journal of Political Economy.

[8]  Uday S. Karmarkar,et al.  Subjectively weighted utility: A descriptive extension of the expected utility model , 1978 .

[9]  R. Hogarth,et al.  Ambiguity and Uncertainty in Probabilistic Inference. , 1985 .

[10]  C. H. Coombs,et al.  Mathematical psychology : an elementary introduction , 1970 .

[11]  K. MacCrimmon.  DESCRIPTIVE AND NORMATIVE IMPLICATIONS OF THE DECISION THEORY POSTULATES. A SUMMARY OF EXPERIMENTAL RESULTS WITH BUSINESS EXECUTIVES , 1966 .

[12]  E H Shuford,et al.  Utility, induced utilities, and small worlds. , 1965, Behavioral science.

[13]  J. R. Larson,et al.  Exploring the external validity of a subjectively weighted utility model of decision making , 1980 .

[14]  W. C. Howell,et al.  Uncertainty measurement: A cognitive taxonomy , 1978 .

[15]  Shawn P. Curley,et al.  An Investigation of Patient's Reactions to Therapeutic Uncertainty , 1984 .

[16]  A. Tversky,et al.  Who accepts Savage's axiom? , 1974 .

[17]  D. Ellsberg.  Decision, probability, and utility: Risk, ambiguity, and the Savage axioms , 1961 .

[18]  K. Borch.  Probabilities of probabilities , 1975 .

[19]  A. Tversky,et al.  Variants of uncertainty , 1982, Cognition.

[20]  K. MacCrimmon,et al.  Utility Theory: Axioms Versus ‘Paradoxes’ , 1979 .