ORGANIZATIONAL BEHAVIOR AND HUMAN DECISION PROCESSES Vol. 68, No. 3, December, pp. 301–317, 1996 ARTICLE NO. 0107 The Relative Importance of Probabilities, Outcomes, and Vagueness in Hazard Risk Decisions KRISTINE M. KUHN AND DAVID V. BUDESCU University of Illinois at Urbana-Champaign composition (termed ambiguous 1 ). This raises a funda- This study investigated the joint effects of vagueness mental problem for all variants of SEU since, ac- on both the probability and the outcome dimensions cording to this model, precision of the probability di- of hazard risk, using both pairwise choice and rating mension of risk should not affect the DM’s preferences response tasks. Seventy-two subjects evaluated risk and choices. stimuli (concerning either environmental or health Numerous empirical studies on risky decision mak- hazards), which varied in the level of probability of ing using variations of Ellsberg’s original problems (e.g. loss, the amount of loss, and the precision with which Curley & Yates, 1985; Curley, Yates, & Abrams, 1986; each dimension was specified. We found strong evi- Einhorn & Hogarth, 1985) have demonstrated that dence of a consistent individual attitude toward vagueness on both risk dimensions and an almost equal DMs are generally averse to taking risks with impre- number of vagueness-seeking and precision-seeking cisely specified (vague) probabilities and are often even subjects. Choices were consistent with a decision rule willing to pay a premium to avoid vagueness. Most of based on dimension preference, but attitude toward these problems manipulated the level of vagueness by vagueness significantly predicted choice in cases specifying ranges of probabilities centered on the pre- where a dimension preference rule was not appro- cise value. Ellsberg’s original paradox was demon- priate. An asymmetric preference reversal pattern was strated through inconsistencies in choices between also demonstrated, with many subjects choosing an op- gambles and this has been the method used in most tion in a pair that they rated as more risky.  1996 subsequent experiments (e.g. Einhorn & Hogarth, Academic Press 1985; MacCrimmon & Larsson, 1979). However, the basic pattern was also obtained with pricing and bid- ding procedures (e.g. Becker & Brownson, 1964; Yates & In a seminal paper Ellsberg (1961; see also Fellner, Zukowski, 1976), elicitation of certainty equivalent val- 1961) used the now-famous two-color urn problem to ues (e.g. Cohen, Jaffray & Said, 1985), and with ratings demonstrate a systematic violation of the Subjective of strength of preference (e.g. Curley & Yates, 1985). Expected Utility (SEU) model: given a choice between Vagueness aversion has been documented in medical, betting on the selection of one of two colors from an insurance, and other decision contexts as well. (For urn containing 100 balls, most people prefer to bet on more details, see a recent comprehensive review by an urn with a known 50–50 composition to one with Camerer & Weber, 1992.) an unknown composition, even if they are indifferent Somewhat surprisingly, individual attitudes toward between betting on either color in either urn. Assum- risk and toward vagueness are not closely associated ing the Decision Maker (DM) has a consistent utility (Cohen, Jaffray, & Said, 1985; Curley, Yates, & Abrams, function, such a preference pattern implies that the 1986; Hogarth & Einhorn, 1990; Schoemaker, 1989, subjective probabilities of the two colors are greater 1991), suggesting that attitude toward vagueness is an in the 50–50 urn than in the urn with the unknown important, distinct and independent, factor in deci- sion behavior. We thank two anonymous reviewers and our colleagues Drs. Clau- dia Gonzalez-Vallejo and Thomas S. Wallsten for useful comments 1 Although the term ambiguity is widely used in the judgment and on an earlier version of this manuscript. This work was supported in part by a grant from the Research Board of the University of decision literature to refer to imprecisely specified probabilities, it is correctly defined as descriptive of situations which allow for more Illinois at Urbana-Champaign. Address correspondence and reprint requests to Kristine M. Kuhn, Department of Psychology, University than one interpretation. Vagueness and imprecision are more appro- priate labels for the conditions concerned, and we will use them of Illinois at Urbana-Champaign, 603 E. Daniel Street, Champaign, IL 61820. Fax: (217) 244-5876. E-mail: kkuhn@s.psych.uiuc.edu. interchangeably (see Budescu et al., 1988). 301 0749-5978/97 $25.00 Copyright  1996 by Academic Press All rights of reproduction in any form reserved.