Unawareness and risk taking: The role of context

Abstract

We study the effects of exposure to unawareness on risk preferences using a novel experimental task. The task has solutions that are difficult to find, but easy to verify and so exposes subjects to unawareness in a natural way. We find that increased exposure to unawareness alone does not affect risk taking. The role of context, however, is shown to be important. For treatments inducing higher unawareness, subjects are more risk averse when the risk elicitation task is framed in the same context as the unawareness-inducing task versus framed in a neutral way; we observe no such differences for the control treatment. We propose a novel decision theoretic model that guides the interpretation of the experimental findings. Our results could inform the decision and game-theoretic literatures, as most models of unawareness assume risk preferences are orthogonal to varying awareness.