[go: up one dir, main page]

Skip to main content
Log in

Preference and belief: Ambiguity and competence in choice under uncertainty

  • Published:
Journal of Risk and Uncertainty Aims and scope Submit manuscript

Abstract

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, log in via an institution to check access.

Access this article

Subscribe and save

Springer+ Basic
$34.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or eBook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Similar content being viewed by others

References

  • Anscombe, F.J., and R.J. Aumann, (1963). “A Definition of Subjective Probability,”Annals of Mathematical Statistics, 34, 199–205.

    Google Scholar 

  • Barlow, Richard E., et al. (1972).Statistical Inference Under Order Restrictions: The Theory and Application of Isotonic Regression. New York: J. Wiley.

    Google Scholar 

  • 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.

    Google Scholar 

  • 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.

    Google Scholar 

  • Cohen, John, and Mark Hansel. (1959). “Preferences for Different Combinations of Chance and Skill in Gambling,”Nature 183, 841–843.

    Google Scholar 

  • 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.

    Google Scholar 

  • Curley, Shawn, J. Frank Yates, and Richard Abrams. (1986). “Psychological sources of Ambiguity Avoidance,”Organizational Behavior and Human Decision Processes 38, 230–256.

    Google Scholar 

  • Einhorn, Hillel, and Robin Hogarth. (1985). “Ambiguity and Uncertainty in Probabilistic Inference,”Psychological Review 93, 433–461.

    Google Scholar 

  • Ellsberg, Daniel. (1961). “Risk, Ambiguity, and the Savage Axioms,”Quarterly Journal of Economics 75, 643–669.

    Google Scholar 

  • Ellsberg, Daniel. (1963). “Risk, Ambiguity, and the Savage Axioms: Reply,”Quarterly Journal of Economics 77, 336–342.

    Google Scholar 

  • Fellner, William. (1961). “Distortion of Subjective Probabilities as a Reaction to Uncertainty,”Quarterly Journal of Economics 75, 670–689.

    Google Scholar 

  • Fishburn, Peter. (1988).Nonlinear Preference and Utility Theory. Baltimore, MD: The Johns Hopkins University Press.

    Google Scholar 

  • Frisch, Deborah, and Jonathan Baron. (1988). “Ambiguity and Rationality,”Journal of Behavioral Decision Making 1, 149–157.

    Google Scholar 

  • Gärdenfors, Peter, and Nils-Eric Sahlin. (1982). “Unreliable Probabilities, Risk Taking, and Decision Making,”Synthese 53 (3), 361–386.

    Google Scholar 

  • 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.

    Google Scholar 

  • Howell, William. (1971). “Uncertainty from Internal and External Sources: A Clear Case of Overconfidence,”Journal of Experimental Psychology 89 (2), 240–243.

    Google Scholar 

  • Kahneman, Daniel, and Amos Tversky. (1979). “Prospect Theory: An Analysis of Decision under Risk,”Econometrica 47, 263–291.

    Google Scholar 

  • 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.

    Google Scholar 

  • March, James, and Zur Shapira. (1987). “Managerial Perspectives on Risk and Risk Taking,”Management Science 33 (11), 1404–1418.

    Google Scholar 

  • Raiffa, Howard. (1961). “Risk, Ambiguity, and the Savage Axioms: Comment,”Quartery Journal of Economics 75, 690–694.

    Google Scholar 

  • Ramsey, Frank. (1931). “Truth and Probability.” In F.P. Ramsey,The Foundations of Mathematics and Other Logical Essays. New York: Harcourt, Brace and Co.

    Google Scholar 

  • 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.

    Google Scholar 

  • Savage, Leonard. (1954).The Foundations of Statistics. New York: Wiley.

    Google Scholar 

  • Schmeidler, David. (1989). “Subjective Probability and Expected Utility Without Additivity,”Econometrica 57 (3), 571–587.

    Google Scholar 

  • 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.

    Google Scholar 

  • Tversky, Amos, Paul Slovic, and Daniel Kahnemann. (1990). “The Causes of Preference Reversal,”American Economic Review 80, 204–217.

    Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Additional information

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.

Rights and permissions

Reprints and permissions

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

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF00057884

Key words

Navigation