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Faculty Research Working Paper Series
Richard Zeckhauser
Frank Plumpton Ramsey Professor of Political Economy
phone: (617)495-1174
fax: (617)384-9340
Shunning Uncertainty: The Neglect of Learning Opportunities
Trautmann, Stefan T., and Richard Zeckhauser. "Shunning Uncertainty: The Neglect of Learning Opportunities." HKS Faculty Research Working Paper Series RWP11-044, November 2011.
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. Such decision makers violate rational decision making and forgo significant expected payoffs when they shun uncertain alternatives in favor of risky ones. Worse, when information is revealed, many make choices contrary to learning. A range of factors explain these violations. The results indicate that priming with optimal strategies offers little improvement.
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