Effects of Outcome and Probabilistic Ambiguity on Managerial Choices

Information ambiguity is prevalent in organizations and likely influences management decisions. This study examines, given imprecise probabilities and outcomes, how managers make choices when they are provided with single-figure benchmarks. Seventy-nine MBA students completed two experiments. We fou...

Full description

Saved in:
Bibliographic Details
Published in:Journal of risk and uncertainty 2002-01, Vol.24 (1), p.47-74
Main Authors: HO, JOANNA L. Y., KELLER, L. ROBIN, KELTYKA, PAMELA
Format: Article
Language:English
Subjects:
Ambiguity
Behavior
Decision making
Decision theory
Expected utility
Financial risk
Information
information ambiguity
Internal rate of return
Investment strategies
Management decisions
Managers
Probability
Probability distribution
Probability distributions
Prospect theory
Randomness
Resource allocation
Return on investment
Risk
Risk aversion
Risk aversion preference
Simulation
Statistical methods
Success
Uncertainty
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Information ambiguity is prevalent in organizations and likely influences management decisions. This study examines, given imprecise probabilities and outcomes, how managers make choices when they are provided with single-figure benchmarks. Seventy-nine MBA students completed two experiments. We found that, in a decision framed as a decision under certainty involving an ambiguous outcome, the majority of the subjects were ambiguity prone in the loss condition and switched to ambiguity aversion in the gain condition. However, in the presence of probabilistic ambiguity in a decision under risk, this expected switching pattern was shown only when the difference in riskiness between the two choice options (in the loss condition) was perceived to be relatively small. In a companion study, we used a written protocol approach to identify factors that affect decision makers' investment choices when faced with ambiguous outcomes. Protocols frequently mentioned that the ambiguous outcome option was risky, even in the case which was framed as a decision under certainty in the problem statement. In a decision under risk with ambiguous outcomes, the combination of probabilistic risk and outcome ambiguity was seen as even more risky.
ISSN:0895-5646
1573-0476
DOI:10.1023/A:1013277310399