Research Symposium

BIO

Emmanuela is a third-year undergraduate student pursuing a Bachelor of Science in Applied and Computational Mathematics with an anticipated graduation in May 2027. Previously, Emmanuela earned an Associate of Arts degree from St. Petersburg College through the Early College Program, graduating with highest honors. After completing her undergraduate degree, Emmanuela plans to pursue a PhD in Economics.

Risk vs. Ambiguity: Reducing Hedging by Changing Payment Structure

Abstract

Within economics, people are expected to be rational and work to their greatest expected utility. Using this, we would expect that people would always pick the option with the greatest expected value, but people often accept lower payoffs to avoid ambiguity, defined as situations where probabilities are unknown. This irrationality makes it interesting and important to economists. The validity of previous ambiguity research is being questioned because of hedging, whereby participants can change ambiguous situations into risky situations, which have set probabilities. However, if that can be rectified with changes in how people are paid for and asked questions future research may still be possible. Within this experiment, we asked if hedging behavior can be minimized within risk-ambiguity experiments in multiple question surveys by adjusting the method by which payment is decided. One treatment only has one choice to act as a control. The second has multiple choices where it is randomly determined which one will be paid out, which is the method that had previously had problems with hedging. The final treatment has participants make one decision, be randomly assigned to either be paid based on that decision or answer a second question. We expect that the third treatment’s results to appear similar to the control’s results and the second to underestimate ambiguity aversion as it has in other experiments. This would provide future researchers with a method to ask multiple questions while still receiving accurate results on ambiguity aversion.

Keywords: Hedging, Ambiguity, Consequentialism, and Dynamic Consistency