Preference Reversals for Ambiguity Aversion

Preference Reversals for Ambiguity Aversion

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Article ID: iaor20117267
Volume: 57
Issue: 7
Start Page Number: 1320
End Page Number: 1333
Publication Date: Jul 2011
Journal: Management Science
Authors: , ,
Abstract:

This paper finds preference reversals in measurements of ambiguity aversion, even if psychological and informational circumstances are kept constant. The reversals are of a fundamentally different nature than the reversals found before because they cannot be explained by context‐dependent weightings of attributes. We offer an explanation based on Sugden's random‐reference theory, with different elicitation methods generating different random reference points. Then measurements of ambiguity aversion that use willingness to pay are confounded by loss aversion and hence overestimate ambiguity aversion.

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