The Discounting of Ambiguous Information in Economic Decision Making

In three experimental studies we investigated how decision makers respond to ambiguous information about costs and benefits. In Experiment 1, we studied the effect of ambiguity about prior costs. Experiments 2 and 3 focused on the effect of ambiguity about future outcomes. The collective results of the three studies suggest that decision makers discount ambiguous information. The findings are related to insights on the disjunction effect, the sunk cost effect, transaction decoupling, and ambiguity aversion.