Working Paper BETA #2024-15

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Title : Are decision-makers sensitive to the source of uncertainty?

Author(s) : Marielle BRUNETTE, Stéphane COUTURE, Kene BOUN MY

Abstract : Decisions under uncertainty are an integral part of the daily life of economic agents. However, if uncertainty bears on the probability, on the outcome, or on both, it may not be trivial. In this paper, we study how agents react to these di\u001Berent sources of uncertainty. For that purpose, we implemented a lab experiment with 209 students. We mainly show that the way the decision-makers behave when faced with di\u001Berent sources of uncertainty depends on the level of probability of winning a certain outcome. A majority of subjects thus prefers uncertainty to risk, regardless of the source, when the probability is low. For medium and high probability levels, most of the subjects prefers to face uncertainty on the outcome rather than uncertainty on the probability, whereas the opposite is true for low probability levels. Finally, we show that ambiguity preferences have a signi\u001Ccant e\u001Bect on the individual's behavior under all sources of uncertainty, whereas risk preferences play a role only when double uncertainty is at stake.

Key-words : risk, uncertainty, ambiguity, experiments.

JEL Classification : C91; D8; D9