Attitudes to Risk and Attitudes to Uncertainty: Experimental Evidence

In a series of experiments the interactions among individual attitudes towards riskand uncertainty, the sign of the outcome domain, and the way uncertainty is representedare tested. This is done in a unified framework, eliciting individual values bymeans of a second price auction. Results confirm the presence of the well-knownfourfold pattern of risk attitude (risk aversion for gains and risk seeking for losses athigh probability, and risk seeking for gains and risk aversion for losses at lowprobability) and show that this pattern can also be extended to uncertainty. In thevaluation of losses the modal pattern is decreasing risk and uncertainty aversion asthe probability of loss increases, while increasing risk and uncertainty aversion isobserved for gains. Moreover, it is found that the size of reaction to uncertainty doesnot depend on the outcome domain, and that it persists in the face of an incentivecompatiblemechanism to elicit preferences.