An exploratory investigation of the impact of evaluation context on ambiguity aversion

Abstract

This paper explores how context influences the evaluation of risky and ambiguous bets in the classic two-colour Ellsberg task. In three experiments context was manipulated via the presence/absence of additional bets against which the risky and ambiguous bets could be compared. In Experiment 1, three bets were added that were ‘intermediate’ in the sense that the information they yielded regarding the proportion of coloured balls lay between that provided by the risky and ambiguous bets. The presence of these intermediate bets reduced the price gap between the risky and ambiguous bets – and hence ambiguity aversion – by reducing the pricing of the risky bet relative to a condition in which only the risky and ambiguous bets were presented. In Experiment 2, we examined the individual effect of each of those intermediate bets on the valuations and found that the specific type of additional bet did not significantly affect the extent of the respective price gap. Finally, in Experiment 3, we explored the impact of the presence of ‘filler’ bets that were not necessarily in between the risky and ambiguous bets in terms of the information they yield. We found that having these filler bets also reduced ambiguity aversion. Overall, the findings suggest that the presence of additional bet(s) changes people’s valuations, and narrows the well-documented gap between the risky and ambiguous bets of the Ellsberg task, regardless of whether these additional bet(s) yield relatively more or less information.

Keywords

• ambiguity
• risk
• context