Article ID: | iaor19941 |
Country: | United States |
Volume: | 39 |
Issue: | 5 |
Start Page Number: | 602 |
End Page Number: | 615 |
Publication Date: | May 1993 |
Journal: | Management Science |
Authors: | Sarin Rakesh K., Weber Martin |
Keywords: | decision: studies |
Prior studies have shown that individuals are averse to ambiguity in probability. Many decisions are, however, made in market settings where an individual’s decision is influenced by decisions of others participating in the market. In this paper, the authors extend the previous research to evaluate the effect of ambiguity on individual decisions and the resulting market price in market settings. They therefore examine an important issue: whether ambiguity effects persist in the face of market incentives and feedback. Two different market organizations, the sealed bid auction and the double oral auction, were employed. The subjects in the experiments were graduate business students and bank executives. The present results show that the individual bids and market prices for lotteries with ambiguous probabilities are consistently lower than the corresponding bids and market pices for