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Does exposure to unawareness affect risk preferences? A preliminary result

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Abstract

One fundamental assumption often made in the literature on unawareness is that risk preferences are invariant to changes of awareness. We study how exposure to unawareness affects choices under risk. Participants in our experiment choose repeatedly between varying sure outcomes and a lottery in three phases. All treatments are exactly identical in phase 1 and phase 3, but differ in phase 2. There are five different treatments pertaining to the lottery faced in phase 2: The control treatment (i.e., a standard lottery), the treatment with awareness of unawareness of lottery outcomes but known number of outcomes, the treatment with awareness of unawareness of outcomes but with unknown number of outcomes, the treatment with unawareness of unawareness of some outcomes, and the treatment with an ambiguous lottery. We study both whether behavior differs in phase 3 across treatments (between subjects effect) and whether differences of subjects’ behavior between phases 1 and phase 3 differ across treatments (within subject effects). We observe no significant treatment effects.

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Notes

  1. More precisely, extensive-form games with unawareness consist of a forest of trees that represent partial descriptions of the most comprehensive tree. It is assumed that the payoff of the terminal node of a less expressive tree corresponds to a payoff of the corresponding terminal node in the more expressive tree.

  2. An anonymous reviewer kindly made us aware of a possible confound involving the representation of hidden outcomes with “?” to the right of known outcomes. It may lead participants to wrongfully think that hidden outcomes may be greater than known ones. The reviewer also remarked that this should not matter for testing the null hypothesis. Anyway, it is certainly a design feature that should be avoided in a follow-up.

  3. Subjects were allowed to select several ethnic backgrounds. Thus, the means do not add up to unity. If multiple majors were selected, then the first major or economics-related major was picked.

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Author information

Authors and Affiliations

  1. College of Economics, Shenzhen University, Shenzhen, China

    Wenjun Ma

  2. Department of Economics, University of California, Davis, USA

    Burkhard C. Schipper

Authors
  1. Wenjun Ma
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  2. Burkhard C. Schipper
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Corresponding author

Correspondence to Burkhard C. Schipper.

Additional information

We thank an anonymous reviewer, Friederike Mengel, Elias Tsakas, and Yoram Halevy as well as participants in the 2016 Bay Area Behavioral and Experimental Economics Workshop at Berkeley for helpful comments. Moreover, we gratefully acknowledge financial support by the Department of Economics, University of California, Davis.

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Ma, W., Schipper, B.C. Does exposure to unawareness affect risk preferences? A preliminary result. Theory Decis 83, 245–257 (2017). https://doi.org/10.1007/s11238-017-9594-z

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