Decision Under Ambiguity: Effects of Sign and Magnitude

Abstract

Decision under ambiguity (uncertainty with unknown probabilities) has been attracting attention in behavioral and neuroeconomics. However, recent neuroimaging studies have mainly focused on gain domains while little attention has been paid to the magnitudes of outcomes. In this study, we examined the effects of the sign (i.e., gain and loss) and magnitude of outcomes on ambiguity aversion and the additivity of subjective probabilities in Ellsberg's urn problem. We observed that (i) ambiguity aversion was observed in both signs, and (ii) subadditivity of subjective probability was not observed in negative outcomes.

Keywords:

• ambiguity
• behavioral economics
• Ellsberg's paradox
• neuroeconomics
• subadditivity

JEL classification:

• D81
• D81