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ABSTRACT:
Ambiguity aversion has been widely observed in individuals’ judgments. Using scenarios that are typical in decision analysis, we investigate ambiguity aversion for pairs of individuals. We examine risky and cautious shifts from individuals’ original judgments to their judgments when they are paired up in dyads. In our experiment the participants were first asked to specify individually their willingness-to-pay for six monetary gambles. They were then paired at random into dyads, and were asked to specify their willingness-to-pay amount for the same gambles. The dyad’s willingness-to-pay amount was to be shared equally by the two individuals. Of the six gambles in our experiment, one involved no ambiguity and the remaining five involved ambiguity with different degrees of familiarity. We found that dyads exhibited both risk aversion as well as ambiguity aversion. Further, when facing ambiguity, dyads’ willingness-to-pay amounts are sometimes more and sometimes less than the average paid by the individuals making up the dyad. The majority of the dyads exhibited a cautious shift in the face of ambiguity, stating a smaller willingness-to-pay than the two individuals’ average. Our study thus confirms the persistence of ambiguity aversion in a group setting and the predominance of cautious shifts for dyads.

SUGGESTED CITATION:
L. Robin Keller, Rakesh K. Sarin, and Jayavel Sounderpandian, "An Examination of Risk and Ambiguity Aversion in Decisions Made by Dyads" (February 5, 2002). Decisions, Operations, and Technology Management. Paper kell001.
http://repositories.cdlib.org/anderson/dotm/kell001