Background uncertainty does not increase risk aversion in decision making

Abstract

Abstract Some theories in economics and psychology propose that background uncertainty, which is uncertainty that is independent of a person’s actual decision, can alter people’s risk-taking behavior with respect to that decision. However, previous empirical research mostly relying on single experiments is inconclusive regarding the existence of this effect. Here, we systematically investigate the effect of background uncertainty on decision-making. After reviewing the literature, we argue that two types of background uncertainty should be distinguished: (a) background ambiguity, where the decision maker does not know the probability of the outcomes of the background event, and (b) background risk, where the outcome probabilities are known. We tested the hypotheses (i) that background uncertainty does affect risk-taking in the decision at hand, and (ii) the type of background uncertainty moderates that effect. In four experiments (total N =863), we induced background uncertainty (ambiguity or risk) using different methods and measured risk-taking with multiple behavioral tasks. We did not find a significant effect of background uncertainty on risk-taking behavior.

Keywords

• Background uncertainty
• Risk-taking behavior
• Ambiguity
• Risk
• Uncertainty
• Decision making