Buying and selling prices under risk, ambiguity and conflict

This paper reports an empirical study of buying and selling prices for three kinds of gambles: Risky (with known probabilities), ambiguous (with lower and upper probabilities), and conflictive (with disagreeing probability assessments). The latter two types of gambles were constructed so that the variances in their probabilities were approximately equal, thereby ensuring that uncertainty type was not confounded with variance. Participants devaluated both ambiguous and conflictive gambles relative to risky gambles with equivalent expected utilities, but the ambiguous and conflictive valuation means did not significantly differ. Moreover, the endowment effect (the gap between buying and selling prices) was exaggerated for these two kinds of gambles in comparison with risky gambles. Conflictive gambles also were found to be devalued less than ambiguous gambles, relative to their risky counterparts. Several self-report measures of attitudes towards uncertainty and risk were included as potential predictors of pricing. The most effective predictors were a measure of instrumental risk orientation and a functional impulsivity scale. Instrumental risk positively predicted valuation of ambiguous and conflictive gambles but not of risky gambles. Functional impulsivity positively predicted valuation of risky gambles but neither of the other two kinds. No individual differences measures predicted relative devaluation.