Signaling probabilities in ambiguity: who reacts to vague news?

Vinogradov, D. and Makhlouf, Y. ORCID: 0000-0001-7737-3153, 2020. Signaling probabilities in ambiguity: who reacts to vague news? Theory and Decision. ISSN 0040-5833

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Abstract

Ambiguity affects decisions of people who exhibit a distaste of and require a premium for dealing with it. Do ambiguity-neutral subjects completely disregard ambiguity and respond to any vague news? We couple decision-making in ambiguity with a preliminary information processing stage, where news is used to test prior beliefs and, possibly but not necessarily, update them. All decision-makers, including ambiguity-neutral, recognize and account for ambiguity at this stage; higher confidence makes ambiguity-neutral subjects less susceptible to vague news. In a two-color Ellsberg experiment with imprecise signals about the unknown probability of success they are less likely to respond to signals; the difference between them and non-neutral to ambiguity subjects vanishes for high precision signals. Less than 60% subjects choose the ambiguous urn, even for high communicated probabilities of success, suggesting many participants, especially ambiguity-neutral, discard vague news at the information processing stage. JEL: C90, D01, D81, as well as seminar participants at ETH-Zürich, University of Essex, University of Glasgow and University of Hamburg, and participants of iCare conference at HSE in Perm and JE on Ambiguity and Strategic Interactions at the University of Grenoble for helpful comments, suggestions and encouragement. All remaining errors are ours.

Item Type: Journal article
Publication Title: Theory and Decision
Creators: Vinogradov, D. and Makhlouf, Y.
Publisher: Springer Verlag
Date: 1 June 2020
ISSN: 0040-5833
Identifiers:
NumberType
10.1007/s11238-020-09759-zDOI
1329329Other
Rights: © The Author(s) 2020. Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.
Divisions: Schools > Nottingham Business School
Record created by: Linda Sullivan
Date Added: 29 May 2020 08:20
Last Modified: 08 Jul 2020 12:11
URI: http://irep.ntu.ac.uk/id/eprint/39908

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