We investigate the relation between judgments of probability and preferences between bets. A series of experiments provides support for the competence hypothesis that people prefer betting on their own judgment over an equiprobable chance event when they consider themselves knowledgeable, but not otherwise. They even pay a significant premium to bet on their judgments. These data connot be explained by aversion to ambiguity, because judgmental probabilities are more ambiguous than chance events. We interpret the results in terms of the attribution of credit and blame. The possibility of inferring beliefs from preferences is questioned.1
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
Anscombe, F.J., and R.J. Aumann, (1963). “A Definition of Subjective Probability,”Annals of Mathematical Statistics, 34, 199–205.
Barlow, Richard E., et al. (1972).Statistical Inference Under Order Restrictions: The Theory and Application of Isotonic Regression. New York: J. Wiley.
Blume, Marshall E., Jean Crockett, and Irwin Friend. (1974). “Stock Ownership in the United States: Characteristics and Trends,”Survey of Current Business.
Brun, Wibecke, and Karl Teigen. (1990). “Prediction and Postdiction Preferences in Guessing,”Journal of Behavioral Decision Making 3, 17–28.
Budescu, David, Shalva Weinberg, and Thomas Wallsten. (1988). “Decisions Based on Numerically and Verbally Expressed Uncertainties,”Journal of Experimental Psychology: Human Perception and Performance 14 (2), 281–294.
Cohen, John, and Mark Hansel. (1959). “Preferences for Different Combinations of Chance and Skill in Gambling,”Nature 183, 841–843.
Curley, Shawn, and J. Frank Yates. (1989). “An Empirical Evaluation of Descriptive Models of Ambiguity Reactions in choice Situations,”Journal of Mathematical Psychology 33, 397–427.
Curley, Shawn, J. Frank Yates, and Richard Abrams. (1986). “Psychological sources of Ambiguity Avoidance,”Organizational Behavior and Human Decision Processes 38, 230–256.
Einhorn, Hillel, and Robin Hogarth. (1985). “Ambiguity and Uncertainty in Probabilistic Inference,”Psychological Review 93, 433–461.
Ellsberg, Daniel. (1961). “Risk, Ambiguity, and the Savage Axioms,”Quarterly Journal of Economics 75, 643–669.
Ellsberg, Daniel. (1963). “Risk, Ambiguity, and the Savage Axioms: Reply,”Quarterly Journal of Economics 77, 336–342.
Fellner, William. (1961). “Distortion of Subjective Probabilities as a Reaction to Uncertainty,”Quarterly Journal of Economics 75, 670–689.
Fishburn, Peter. (1988).Nonlinear Preference and Utility Theory. Baltimore, MD: The Johns Hopkins University Press.
Frisch, Deborah, and Jonathan Baron. (1988). “Ambiguity and Rationality,”Journal of Behavioral Decision Making 1, 149–157.
Gärdenfors, Peter, and Nils-Eric Sahlin. (1982). “Unreliable Probabilities, Risk Taking, and Decision Making,”Synthese 53 (3), 361–386.
Hogarth, Robin, and Howard Kunreuther. (1988).Pricing Insurance and Warranties: Ambiguity and Correlated Risks. Unpublished manuscript, University of Chicago and University of Pennsylvania.
Hogarth, Robin, and Howard Kunreuther. (1989). “Risk, Ambiguity, and Insurance,”Journal of Risk and Uncertainty 2, 5–35.
Howell, William. (1971). “Uncertainty from Internal and External Sources: A Clear Case of Overconfidence,”Journal of Experimental Psychology 89 (2), 240–243.
Kahneman, Daniel, and Amos Tversky. (1979). “Prospect Theory: An Analysis of Decision under Risk,”Econometrica 47, 263–291.
Lichtenstein, Sarah, Baruch Fischhoff, and Lawrence Phillips. (1982). “Calibration of Probabilities: The State of the Art to 1980,” In D. Kahneman, P. Slovic and A. Tversky (eds.),Judgment under Uncertainty: Heuristics and Biases. New York: Cambridge University Press.
March, James, and Zur Shapira. (1987). “Managerial Perspectives on Risk and Risk Taking,”Management Science 33 (11), 1404–1418.
Raiffa, Howard. (1961). “Risk, Ambiguity, and the Savage Axioms: Comment,”Quartery Journal of Economics 75, 690–694.
Ramsey, Frank. (1931). “Truth and Probability.” In F.P. Ramsey,The Foundations of Mathematics and Other Logical Essays. New York: Harcourt, Brace and Co.
Rothbart, Myron, and Mark Snyder. (1970). “Confidence in the Prediction and Postdiction of an Uncertain Outcome,”Canadian Journal of Behavioral Science 2 (1), 38–43.
Savage, Leonard. (1954).The Foundations of Statistics. New York: Wiley.
Schmeidler, David. (1989). “Subjective Probability and Expected Utility Without Additivity,”Econometrica 57 (3), 571–587.
Skyrm, Brian. (1980). “Higher Order Degrees of Belief.” In D.H. Mellor (ed.),Prospects for Pragmatism. Essays in Memory of F.P. Ramsey. Cambridge: Cambridge University Press, pp. 109–137.
Tversky, Amos, Paul Slovic, and Daniel Kahnemann. (1990). “The Causes of Preference Reversal,”American Economic Review 80, 204–217.
This work was supported by Grant 89-0064 from The Air Force Office of Scientific Research to Stanford University. Funding for experiment 1 was provided by SES 8420240 to Ray Battalio. We have benefited from discussions with Max Bazerman, Daniel Ellsberg, Richard Gonzales, Robin Hogarth, Linda Ginzel, Daniel Kahneman, and Eldar Shafir.
About this article
Cite this article
Heath, C., Tversky, A. Preference and belief: Ambiguity and competence in choice under uncertainty. J Risk Uncertainty 4, 5–28 (1991). https://doi.org/10.1007/BF00057884