Signaling probabilities in ambiguity: who reacts to vague news?

Vinogradov, D. and Makhlouf, Y. (2021) Signaling probabilities in ambiguity: who reacts to vague news? Theory and Decision, 90(3-4), pp. 371-404. (doi: 10.1007/s11238-020-09759-z)

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Ambiguity affects decisions of people who exhibit a distaste of and require a premium for dealing with it. Do ambiguity-neutral subjects completely disregard ambiguity and react to any vague news? Online vending platforms often attempt to affect buyer’s decisions by messages like “20 people are looking at this item right now” or “The average score based on 567 reviews is 7.9/10”. We augment the two-color Ellsberg experiment with similarly worded signals about the unknown probability of success. All decision-makers, including ambiguity-neutral, recognize and account for ambiguity; ambiguity-neutral subjects are less likely to respond to vague signals. The difference between decisions of ambiguity-neutral and non-neutral subjects vanishes for high precision signals; still less than 60% subjects choose the ambiguous urn, even for high communicated probabilities of success. We conjecture participants may discard information, if they see no contradiction between it and their prior beliefs, hence the latter are not updated. Higher confidence makes subjects more likely to discard the news, and empirically ambiguity-neutral subjects appear more confident than those ambiguity-averse.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Vinogradov, Professor Dmitri
Authors: Vinogradov, D., and Makhlouf, Y.
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:Theory and Decision
ISSN (Online):1573-7187
Published Online:01 June 2020
Copyright Holders:Copyright © 2020 The Authors
First Published:First published in Theory and Decision 90(3-4): 371-404
Publisher Policy:Reproduced under a Creative Commons license

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