Decision Analysis Working Paper Abstract
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WP030010
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Title: An Examination of Risk and Ambiguity Aversion in Decisions
Made by Dyads
Authors: L.
Robin Keller University of California, Irvine, Rakesh
K. Sarin University of California, Los Angeles, and Jayavel
Sounderpandian University of Wisconsin
Date: February 2002
Status: working paper
Ambiguity aversion has been widely observed in individuals’ judgments.
Using scenarios that are typical in decision analysis, we investigate ambiguity
aversion for pairs of individuals. We examine risky and cautious shifts
from individuals’ original judgments to their judgments when they are paired
up in dyads. In our experiment the participants were first asked to specify
individually their willingness-to-pay for six monetary gambles. They were
then paired at random into dyads, and were asked to specify their willingness-to-pay
amount for the same gambles. The dyad’s willingness-to-pay amount was to
be shared equally by the two individuals. Of the six gambles in our experiment,
one involved no ambiguity and the remaining five involved ambiguity with
different degrees of familiarity. We found that dyads exhibited both risk
aversion as well as ambiguity aversion. Further, when facing ambiguity,
dyads’ willingness-to-pay amounts are sometimes more and sometimes less
than the average paid by the individuals making up the dyad. The majority
of the dyads exhibited a cautious shift in the face of ambiguity, stating
a smaller willingness-to-pay than the two individuals’ average. Our study
thus confirms the persistence of ambiguity aversion in a group setting
and the predominance of cautious shifts for dyads.
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