Golman, Gurney, and Loewenstein (2020) on Information Gaps

Russell Golman, Nikolos Gurney, and George Loewenstein, “Information Gaps for Risk and Ambiguity.” Psychological Review 128(1): 86–103, 2021; http://dx.doi.org/10.1037/rev0000252 

• The authors argue that risk and ambiguity aversion arise from the desire to avoid unpleasant thinking about unanswered questions. (Risk and ambiguity loving, alternatively, is associated with the prospect of being spurred to think about pleasant matters.) 

• If you have a question with an unknown answer, you have an information gap. The attention that this gap attracts from you depends on salience (contextual factors which highlight the gap) and importance. 

• Gambling raises the importance of certain information gaps – which team will win? – and hence, directs our attention towards them. We therefore like to gamble when we welcome the increased attention, and are dissuaded from gambling on topics we don’t like to think about. 

• A key information gap concerns uncertain outcomes. Risk aversion (even with minimal stakes) can arise from our desire to avoid thinking about the uncertainty. Compound lotteries, er, compound the uncertainty, and the aversion. 

• The previous two bullet points offer new explanations for (1) betting on your favorite team and (2) low-stakes risk aversion. (A risk averse person presumably would want to bet against their favorite team, as a way of buying insurance against the bad outcome that arises if the preferred team loses.) 

• When shown risky prospects one-at-a-time, people seem to respond similarly to more and less ambiguous situations. When there is a choice between prospects, however, ambiguity aversion emerges. The comparison among alternatives presumably makes the information gaps (not knowing the precise probabilities) more salient. 

• People with relevant expertise enjoy ambiguity, as in racetrack betting. But those who feel uninformed find the ambiguity unsettling. 

• Study 1: Pittsburgh Pirates fans choose how much to bet on either their team’s hits or the number of strikeouts suffered by batters on their team. These bets involve no ambiguity – once the fans choose a bet size, their probability of being assigned the “winning” side of the bet is .5. Nevertheless, the fans bet more when hits are the relevant subject. Presumably they do not enjoy having to think about the strikeouts that the players on their team will suffer. 

• Study 2: Carnegie Mellon University alumni are given the opportunity to bet on the future relative rankings of two excellent CMU computer science departments – or on the relative future prospects of two not-so-good natural science departments. In this case, objective probabilities are not known, there is ambiguity in the prospects. The alumni display aversion to the ambiguity; however, they show a lot less aversion to that ambiguity when betting on the great departments. It seems that thinking about the future success of CMU star departments is a happy thought that they, to some extent, welcome.