Shunning uncertainty: The neglect of learning opportunities

S.T. Trautmann, R.J. Zeckhauser

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Financial, managerial, and medical decisions often involve alternatives whose possible outcomes have uncertain probabilities. In contrast to alternatives whose probabilities are known, these uncertain alternatives offer the benefits of learning. In repeat-choice situations, such learning brings value. If probabilities appear favorable (unfavorable), a choice can be repeated (avoided). In a series of experiments involving bets on the colors of poker chips drawn from bags, decision makers often prove to be blind to the learning opportunities offered by uncertain probabilities. They forgo significant expected payoffs when they shun uncertain alternatives in favor of known ones. Worse, when information is revealed, many make choices contrary to learning. Priming with optimal strategies offers little improvement. Such decision makers violate identified requirements for making rational decisions.
Original languageEnglish
Pages (from-to)44-55
JournalGames and Economic Behavior
Volume79
DOIs
Publication statusPublished - 2013

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Uncertainty
Neglect
Decision maker
Optimal strategy
Experiment
Priming

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Shunning uncertainty : The neglect of learning opportunities. / Trautmann, S.T.; Zeckhauser, R.J.

In: Games and Economic Behavior, Vol. 79, 2013, p. 44-55.

Research output: Contribution to journalArticleScientificpeer-review

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AU - Zeckhauser, R.J.

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AB - Financial, managerial, and medical decisions often involve alternatives whose possible outcomes have uncertain probabilities. In contrast to alternatives whose probabilities are known, these uncertain alternatives offer the benefits of learning. In repeat-choice situations, such learning brings value. If probabilities appear favorable (unfavorable), a choice can be repeated (avoided). In a series of experiments involving bets on the colors of poker chips drawn from bags, decision makers often prove to be blind to the learning opportunities offered by uncertain probabilities. They forgo significant expected payoffs when they shun uncertain alternatives in favor of known ones. Worse, when information is revealed, many make choices contrary to learning. Priming with optimal strategies offers little improvement. Such decision makers violate identified requirements for making rational decisions.

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M3 - Article

VL - 79

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