Abstract
We build two experimental markets to examine individual valuations of risk reductions with two risk-management tools: self-insurance and self-protection. We find no positive evidence that the risk-reducing mechanisms constitute a “frame.” Ambiguity in the probability on average affects valuation only weakly, and changes in the representation of ambiguity do not alter valuation. Finally, unlike the results obtained by Hogarth and Kunreuther for the case of market insurance, our findings do not provide a strong support for the “Anchoring and Adjustment” ambiguity model.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Camerer, Colin, and Howard, Kunreuther. (1989). “Experimental Markets for Insurance,” Journal of Risk and Uncertainty 2, 265–300.
Camerer, Colin, and Martin, Weber. (1992). “Recent Developments in Modeling Preferences: Uncertainty and Ambiguity,” Journal of Risk and Uncertainty 5, 325–70.
Cohen, Michelle, Jean-Yves, Jaffray, and T., Said. (1985). “Individual Behaviour under Risk and under Uncertainty: An Experimental Study,” Theory and Decision 18, 203–228.
Coppinger, Vicki, Vernon, Smith, and Jon, Titus. (1980). “Incentives and Behavior in English, Dutch, and Sealed-Bid Auctions,” Economic Enquiry 18, 2–22.
Coursey, Don, John, Hovis, and William, Schulze. (1986). “On the Supposed Disparity between Willingness to Accept and Willingness to Pay Measures of Value,” Quarterly Journal of Economics 102, 679–90.
Coursey, Don. (1987). “Markets and Measurement of Value,” Public Choice 55, 291–97.
Ehrlich, Isaac, and Gary, Becker. (1972). “Market Insurance, Self-Insurance and Self-Protection,” Journal of Political Economy 80, 623–48.
Einhorn, Hillel, and Robin, Hogarth. (1985). “Ambiguity and Uncertainty in Probabilistic Inference,” Psychological Review 92, 433–59.
Einhorn, Hillel, and Robin, Hogarth. (1986). “Decision Making under Ambiguity,” Journal of Business 59, 224–49.
Eisenberger, Roselies, and Martin, Weber. (1995). “Willingness to Pay and Willingness to Accept for Risky and Ambiguous Lotteries,” Journal of Risk and Uncertainty 10, 223–233.
Ellsberg, Daniel. (1961). “Risk, Ambiguity, and the Savage Axiom,” Quarterly Journal of Economics 75, 643–69.
Gardenfors, Peter, and Nils-Eric, Sahlin. (1982). “Unreliable Probabilities, Risk Taking, and Decision Making,” Synthese 53, 361–86.
Gardenfors, Peter, and Nils-Eric, Sahlin. (1983). “Decision Making with Unreliable Probabilities,” British Journal of Mathematical and Statistical Psychology 36, 240–51.
Gregory, Robin, and Lita, Furby. (1987). “Auctions, Experiments, and Contingent Valuation,” Public Choice 55, 273–89.
Harstad, Ronald. (1990). “Dominant Strategy Adoption. Efficiency and Bidders' Experiences with Pricing Rules,” Mimeo, Virginia Commonwealth University.
Hogarth, Robin, and Howard, Kunreuther. (1985). “Ambiguity and Insurance Decisions,” American Economic Review 75, 386–90.
Hogarth, Robin, and Howard, Kunreuther. (1989). “Risk, Ambiguity, and Insurance,” Journal of Risk and Uncertainty 2, 5–35.
Hogarth, Robin, and Howard, Kunreuther. (1992). “Pricing Insurance and Warranties: Ambiguity and Correlated Risks,” Geneva Papers on Risk and Insurance Theory 17, 35–60.
Kagel, John, Ronald, Harstad, and Dan, Levin. (1987). “Information Impact and Allocation Rules in Auctions with Private Values: a Laboratory Study,” Econometrica 55, 1275–1304.
Kagel, John, and Dan, Levin. (1993). “Independent Private Value Auctions: Bidder Behaviour in First-, Second-, and Third-price Auctions with Varying Number of Bidders,” Economic Journal 103, 868–79.
Kahneman, Daniel, and Amos, Tversky. (1979). “Prospect Theory: An Analysis of Decision Under Risk,” Econometrica 47, 263–91.
Karni, Edi, and Zvi, Safra. (1986). “Vickrey Auctions in the Theory of Expected Utility with Rank-dependent Probabilities,” Economics Letters 20, 15–18.
Kunreuther, Howard, Robin, Hogarth, and Jacqueline, Meszaros. (1993). “Insurer Ambiguity and Market Failure,” Journal of Risk and Uncertainty 7, 71–87.
Maffioletti, Anna. (1995). “Evaluating Lotteries with Unreliable Probabilities: An Experimental test of Explanations for the Ellsberg Paradox,” Discussion Paper Series. No. 1, University of York.
Salo, Ahti, and Martin Weber. (1994). “Vickrey Auction under Choquet Expected Utility.” Working Paper No. 6, Universität Mannheim.
Segal, Uzi. (1987). “The Ellsberg's Paradox and Risk Aversion: An Anticipated Utility Approach,” International Economic Review 28, 175–202.
Shogren, Jason. (1990). “The Impact of Self-Protection and Self-Insurance on Individual Response to Risk,” Journal of Risk and Uncertainty 3, 191–204.
Shoemaker, P. (1991). “Choices Involving Uncertain Probabilities. Tests of Generalized Utility Models,” Journal of Economic Behaviour and Organization 16, 295–317.
Tversky, Amos, and Daniel, Kahneman. (1992). “Advances in Prospect Theory: Cumulative Representation of Uncertainty,” Journal of Risk and Uncertainty 5, 297–323.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Di Mauro, C., Maffioletti, A. An experimental investigation of the impact of ambiguity on the valuationof self-insurance and self-protection. J Risk Uncertainty 13, 53–71 (1996). https://doi.org/10.1007/BF00055338
Issue Date:
DOI: https://doi.org/10.1007/BF00055338