Preference reversals for ambiguity aversion

Trautmann, S. T., Vieider, F. M. and Wakker, P. P. (2011) Preference reversals for ambiguity aversion. Management Science, 57 (7). pp. 1320-1333. ISSN 1526-5501 doi: 10.1287/mnsc.1110.1343

Abstract/Summary

This paper finds preference reversals in measurements of ambiguity aversion, even if psychological and informational circumstances are kept constant. The reversals are of a fundamentally different nature than the reversals found before because they cannot be explained by context-dependent weightings of attributes. We offer an explanation based on Sugden's random-reference theory, with different elicitation methods generating different random reference points. Then measurements of ambiguity aversion that use willingness to pay are confounded by loss aversion and hence overestimate ambiguity aversion.