Abstract
Most of life's decisions involve risk and uncertainty regarding whether reward or loss will follow. Decision makers often face uncertainty not only about the likelihood of outcomes (what are the chances that I will get a raise if I ask my supervisor? What are the chances that my supervisor will be upset with me for asking?) but also the magnitude of outcomes (if I do get a raise, how large will it be? If my supervisor gets upset, how bad will the consequences be for me?). Only a few studies have investigated economic decision making with ambiguous likelihoods, and even fewer have investigated ambiguous outcome magnitudes. In the present report, we investigated the effects of ambiguous outcome magnitude, risk, and gains/losses in an economic decision-making task with low stakes (Study 1; $3.60-$5.70; N = 367) and high stakes (Study 2; $6-$48; N = 210) using a within-subjects design. We conducted computational modeling to determine individuals' preferences/aversions for ambiguous outcome magnitudes, risk, and gains/losses. We additionally investigated the association between trait anxiety and trait depression and decision-making parameters. Our results show that increasing stakes increased ambiguous gain aversion and unambiguous risk aversion but increased ambiguous sure loss preference; participants also became more averse to ambiguous sure gains relative to unambiguous risky gains. There were no significant effects of trait anxiety or trait depression on economic decision making. Our results suggest that as stakes increase, people tend to avoid uncertainty in the gain domain (especially ambiguous gains) but prefer ambiguous vs unambiguous sure losses.
Highlights
Prospect theory is a well-supported economic model of decision making under risk, offering a promising avenue through which we can understand the role of uncertainty in decision making (Abdellaoui et al, 2008, 2016; Kahneman et al, 1991; Kahneman & Tversky, 2013; Tversky & Kahneman, 1992)
We report two studies investigating economic decision making with risk, loss, and ambiguous outcome magnitude
We conducted computational modeling to determine whether including ambiguity parameters would improve model fit over and above traditional prospect theory, which is a seminal model that parameterizes risk preference and loss aversion
Summary
Prospect theory is a well-supported economic model of decision making under risk, offering a promising avenue through which we can understand the role of uncertainty in decision making (Abdellaoui et al, 2008, 2016; Kahneman et al, 1991; Kahneman & Tversky, 2013; Tversky & Kahneman, 1992). A small subset of economic decision-making studies manipulate ambiguity regarding the likelihood that the individual will receive a gain or loss of known magnitude, and both theoretical (Camerer & Weber, 1992) and empirical (Feldman-Hall et al, 2016; Fox & Tversky, 1995; Heath & Tversky, 1991; Huettel et al, 2006; Ruderman et al, 2016) work suggests that individuals show aversion to ambiguous outcome likelihoods. Participants’ decisions affected their payment (rather than making hypothetical decisions), greatly adding to the validity of our design (Fehr-Duda et al, 2010; Holt & Laury, 2002) To our knowledge, this is the first report to assess in a within-subjects design how risk/no-risk, gains/losses, and unambiguous/ ambiguous outcome magnitudes affect decisions, as well as the effect of incentive-compatible low vs high stakes (i.e., not hypothetical). Our report is the first to assess the association between anxiety, depression, and ambiguous outcome magnitudes in a controlled economic decision-making experiment
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