Risk behind the veil of ambiguity: Decision-making under social and nonsocial sources of uncertainty.

Abstract

Research has long documented how decision-making in risky environments differs between environments where the probabilities of uncertain outcomes are known and where the probabilities are unknown, the latter often referred to as "ambiguous" environments. Yet, there is a dearth of research examining how decisions may be affected by the source responsible for the distribution of uncertain outcomes. The source responsible for generating distributions of uncertain outcomes may be generated by another person (i.e., is social in nature) or by a nonsocial probabilistic mechanism. While a few studies examine how the source responsible for uncertain outcomes affects decisions when probabilities are known, the present study extends prior research to the realm of ambiguity by testing how the source of uncertainty affects both decisions when probabilities are fully known and when probabilities are partially unknown using a within-subjects experimental design. We calculate a general measurement of Social Risk Sensitivity to capture how individuals differ in their sensitivity across three uncertainty environments: risk with no ambiguity, risk with low ambiguity, and risk with high ambiguity. We find evidence showing strong correlations between Social Risk Sensitivity across all three levels of ambiguity. Our results corroborate the previous literature regarding ambiguity effects on decision-making behavior and extend prior work for the first time in this area by demonstrating that individual decisions are shaped by their individual sensitivity to the source from which uncertainty is derived.