Causes and consequences of uncertainty-seeking behavior
Economic Theory
Final Report Abstract
Many people have negative associations with the idea of risk and uncertainty. It is therefore typically presumed that people try to avoid uncertainty. To make them accept uncertainty, they need additional rewards. This would be for example the case when investment in stocks provide higher returns than investments in safe assets. However, people also often become uncertainty seeking. Consider the case where a person has serious illness and traditional medical approaches do not help anymore. In this case the ill person may be very willing to try a new and unknown treatment that is not yet approved by the regulator and little is known about success rates and side effects. In such examples, uncertainty seems desirable. The current project aimed to study the prevalence of uncertainty seeking behavior and how it relates to the type of risk involved. The project provides clear evidence that uncertainty seeking is a relevant phenomenon that can robustly be found in different context. The type of the risk is important. For situation where people mostly experience good outcomes, uncertainty aversion is typically strong. In situations where good outcomes are very unlikely, or in situations where negative or bad outcomes are involved (e.g. losses of income, bad health outcomes as discussed above), uncertainty seeking is typically observed. Our results imply that uncertainty attitudes are more complex than simple uncertainty aversions and avoidance. People have complex attitudes and often prefer to seek uncertainty. These insights are important for the regulation of financial markets and advice, health services, and more generally consumer protection.
Publications
- (2016). Ambiguity Attitudes in Decisions for Others. Economics Letters 146,126-129
König-Kersting, C. and S. T. Trautmann
(See online at https://doi.org/10.1016/j.econlet.2016.07.036) - (2018). Ambiguity aversion is not universal. European Economic Review 101, 268-283
Kocher, M. G., A. Lahno, and S. T. Trautmann
(See online at https://doi.org/10.1016/j.euroecorev.2017.09.016)
