Comparing Decisions Under Compound Risk and Ambiguity: The Importance of Cognitive Skills

Prokosheva, Sasha

doi:10.2139/ssrn.2555446

Cited by 8 publications

(11 citation statements)

References 62 publications

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“…Trautmann and van de Kuilen, 2014 for a recent survey). While most of these studies have generally considered Western university students as subjects, the same overall findings have been replicated with people from the general population (Dimmock et al, 2015;Dimmock et al, 2016), business owners (Viscusi and Chesson, 1999), trade union leaders (Maffioletti and Santoni, 2005), managers and actuaries (Hogarth and Kunreuther, 1989;Ho et al, 2002), farmers (Akay et al, 2012;Bougherara et al, 2017), and children (Sutter et al, 2013;Prokosheva, 2016). To our knowledge, our study is the first that investigates ambiguity preferences of a pool of overconfident and experienced elites, such as real-life policymakers, who moreover come from all over the world (see Bosetti et al, 2017).…”

Section: Related Literaturementioning

confidence: 87%

Are Policymakers Ambiguity Averse?*

Berger

Bosetti

2019

The Economic Journal

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We investigate the ambiguity preferences of a unique sample of real-life policymakers at the Paris UN climate conference (COP21). We find that policymakers are generally ambiguity averse. Using a simple design, we are moreover able to show that these preferences are not necessarily due to an irrational behavior, but rather to intrinsic preferences over unknown probabilities. Exploring the heterogeneity within our sample, we also show that the country of origin and the degree of quantitative sophistication affect policymakers’ attitudes towards compound risk, but not towards ambiguity. Robustness results are obtained in a lab experiment with a sample of university students.

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Section: Related Literaturementioning

confidence: 87%

Are Policymakers Ambiguity Averse?*

Berger

Bosetti

2019

The Economic Journal

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“…Dean and Ortoleva [ 76 ] only find negative correlation between cognitive abilities and time preferences at the more distant time horizon, but no significant correlation between cognitive abilities and risk or uncertainty. We note that there are studies that find a significant association between cognitive skills and uncertainty attitudes [ 86 ] and cognitive skills and cooperation [ 87 , 88 ]. In line with the literature, we also observe that female are more risk/uncertainty averse [ 34 ] and perform worse in the CRT [ 77 ].…”

Section: Literature Review and Hypothesesmentioning

confidence: 97%

Which preferences associate with school performance?—Lessons from an exploratory study with university students

Horn

Kiss

2018

PLoS ONE

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Success in life is determined to a large extent by school performance so it is important to understand the effect of the factors that influence it. In this exploratory study, in addition to cognitive abilities, we attempt to link measures of preferences with outcomes of school performance. We measured in an incentivized way risk, time, social and competitive preferences and cognitive abilities of university students to look for associations between these measures and two important academic outcome measures: exam results and GPA. We find consistently that cognitive abilities (proxied by the Cognitive Reflection Test) are very well correlated with school performance. Regarding non-cognitive skills, we report suggestive evidence for many of our measured preferences. We used two alternative measures of time preference: patience and present bias. Present bias explains exam grades better, while patience explains GPA relatively better. Both measures of time preferences have a non-linear relation to school performance. Competitiveness matters, as students, who opt for a more competitive payment scheme in our experimental task have a higher average GPA. We observe also that risk-averse students perform a little better than more risk-tolerant students. That makes sense in case of multiple choice exams, because more risk-tolerant students may want to try to pass the exam less prepared, as the possibility of passing an exam just by chance is not zero. Finally, we have also detected that cooperative preferences—the amount of money offered in a public good game—associates strongly with GPA in a non-linear way. Students who offered around half of their possible amounts had significantly higher GPAs than those, who offered none or all their money.

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“…Yet, overall we can observe a pattern already discussed in Section 5.3.3: ROCR is more prevalent when the complexity of the task is reduced. This is for example the case in Prokosheva (2016), where 42% of the subjects meet the condition of ROCR, defined as a single indifference between a simple risk and a CR25 prospect generated with an urn containing 4 balls. In the same vein, reduction is also more often observed in our study (32% of our subjects, see Table 1) using only binary risk in the first stage than in the studies using more complex cases of compound risk as in Halevy (2007); Abdellaoui et al (2015); Chew et al (2017); Dean and Ortoleva (2015).…”

Section: A Descriptive Statisticsmentioning

confidence: 99%

Three Layers of Uncertainty: An Experiment

et al. 2018

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We experimentally explore decision-making under uncertainty using a framework that decomposes uncertainty into three distinct layers: (1) physical uncertainty, entailing inherent randomness within a given probability model, (2) model uncertainty, entailing subjective uncertainty about the probability model to be used and (3) model misspecification, entailing uncertainty about the presence of the true probability model among the set of models considered. Using a new experimental design, we measure individual attitudes towards these different layers of uncertainty and study the distinct role of each of them in characterizing ambiguity attitudes. In addition to providing new insights into the underlying processes behind ambiguity aversion-failure to reduce compound probabilities or distinct attitudes towards unknown probabilities-our study provides the first empirical evidence for the intermediate role of model misspecification between model uncertainty and Ellsberg in decision-making under uncertainty.

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Comparing Decisions Under Compound Risk and Ambiguity: The Importance of Cognitive Skills

Abstract: ISBN 978-80-7343-330-7 (Univerzita Karlova. Centrum pro ekonomický výzkum a doktorské studium) ISBN 978-80-7344-322-1 (Akademie věd České republiky. Národohospodářský ústav) Comparing Decisions under Compound Risk and Ambiguity: The Importance of Cognitive Skills

Cited by 8 publications

References 62 publications

Are Policymakers Ambiguity Averse?*

Are Policymakers Ambiguity Averse?*

Which preferences associate with school performance?—Lessons from an exploratory study with university students

Three Layers of Uncertainty: An Experiment

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