Journal of Risk and Uncertainty

, Volume 47, Issue 3, pp 291–310 | Cite as

A further exploration of the uncertainty effect

Article

Abstract

Individual valuation of a binary lottery at values less than the lottery’s worst outcome has been designated as the “uncertainty effect”. Our paper aims to explore the boundary conditions of the uncertainty effect by investigating a plausible underlying process and proposing two possible methods. First, we examine how providing an exogenous evaluation opportunity prior to judging the value of the lottery affects individuals’ judgments, and find that first valuing the worst outcome and then the lottery eliminates the uncertainty effect. Second, we explore whether introducing additional cognitive load dampens how far decision makers correct their initial evaluations, and find that additional cognitive load is able to eliminate the uncertainty effect.

Keywords

Boundary conditions Uncertainty effect Decision under uncertainty 

JEL Classification

D81 C91 D03 

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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.UTS Business SchoolUniversity of Technology, SydneySydneyAustralia
  2. 2.School of ManagementFudan UniversityShanghaiChina
  3. 3.The Paul Merage School of BusinessUniversity of California, IrvineIrvineUSA

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