The Role of Intuition and Reasoning in Driving Aversion to Risk and Ambiguity

Jeffrey Butler, Luigi Guiso and Tullio Jappelli ()

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: Using a large sample of retail investors as well as experimental data we find that risk and ambiguity aversion are positively correlated. We provide evidence that a common link is decision mode: intuitive thinkers tolerate more risk and ambiguity than effortful reasoners. One interpretation is that intuitive thinking confers an advantage in risky or ambiguous situations. We present supporting lab and field evidence that intuitive thinkers outperform others in uncertain environments. Finally, we find that risk and ambiguity aversion vary with individual characteristics and wealth. The wealthy are less risk averse but more ambiguity averse, which has implications for financial puzzles.

Keywords: Risk Aversion; Risk Ambiguity; Decision Theory; Dual Systems; Intuitive Thinking (search for similar items in EconPapers)
JEL-codes: D81 D83 (search for similar items in EconPapers)
Date: 2011-04-05, Revised 2013-01-15
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-neu and nep-upt
References: Add references at CitEc
Citations: View citations in EconPapers (17)

Published in Theory and Decision, 2014, 77(4), 455-484

Downloads: (external link)
http://www.csef.it/WP/wp282.pdf (application/pdf)

Related works:
Journal Article: The role of intuition and reasoning in driving aversion to risk and ambiguity (2014)
Working Paper: The role of intuition and reasoning in driving aversion to risk and ambiguity (2011)
Working Paper: The role of intuition and reasoning in driving aversion to risk and ambiguity (2011)
Working Paper: The role of intuition and reasoning in driving aversion to risk and ambiguity (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:282

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