Ambiguity And Decision Making Decisions In The Decision-Making Theory

2151 Words 9 Pages
One of the first topics discussed at the beginning of the course was risk aversion, which examined the way individuals make decisions when there is a possibility that one of the potential outcomes that can be achieved is undesirable when compared to a perceived better alternative. As explained from during lectures and readings, and illustrated by actual experiments, individuals are more likely to be risk averse or risk neutral than risk loving. While the concept of risk aversion influences nearly every important decision we, as humans, make in our life, it is not the sole factor in the decision making process of rational, self-interested individuals: ambiguity, or the aversion to it, is an equally if not greater influencer in the decision-making …show more content…
Participants were given a choice between two urns: one evenly filled with 50 red and blue balls, the other holding an unknown proportion of red and blue balls totaling 100 balls. Bets reflecting potential payoffs were known to the participants beforehand; initial results in each treatment showed that the majority of participants selected the first urn where distributions were guaranteed –strengthening the claim that ambiguity aversion plays an important role in the decision-making process. Replicating and reproducing the results of the classic urn experiment became our central focus, as we attempted to gauge the ambiguity preferences of the …show more content…
Risk is often seen as the biggest contributor to uncertainty, but it only relays a portion of the whole story. Ambiguity plays equally a large role in the way individuals make decision through a concealment of outcome probabilities. According to Ellsberg, aversion to ambiguity will cause individuals to decline the opportunity for higher payoffs if it means being able to select a bet with certain probabilities. Yet, the results from our experiment showed that many individuals winded up swapping their risk references at multiple points throughout the process. This may have reflected a failure on our part to communicate the instructions clearly, but it may have also been an issue of individuals being uninterested or all together apathetic about their decisions. In planning for the experiment, we attempted to avoid this by creating an aggregate payoff pot that would go to a single individual –rather than being split among multiple individuals, as has been the case for previous experiments. Another issue present hanging over the experiment was the relatively small sample size of the classroom. Although an inherent factor in the experiment, conducting any sort of statistical test to compare the results of one stage to another. If this experiment were to be ran again both an increased sample size and a stronger effort to communicate instructions would need to be implemented in order to

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