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This paper extends prior research by jointly assessing the roles of risk attitude and tolerance for ambiguity in predicting choice. An experiment examined the effects of these variables on decisions made in four different scenarios. The four scenarios (treatment combinations) were generated by manipulating risk and ambiguity into two levels (high and low). The context was defined in terms of a sample size selection problem. The second issue explored was the effect of attitudes toward risk and ambiguity on decision confidence. The results indicate that (1) both risk attitude and ambiguity intolerance determined choice behavior, (2) the roles of these individual attitudes depend on the levels of the two treatment variables of risk and ambiguity, (3) the presence of ambiguity accentuates the perception of risk in individual subjects, and (4) decision makers who are less risk averse, and have more tolerance for ambiguity, display greater confidence in their choice. The paper discusses some of the managerial implications of the results.

It is a commonly accepted belief in both the axiomatic and noncooperative game literatures that negotiators' risk preferences affect bargaining outcomes [28] [33]. However, there is little systematic empirical evidence to support this conclusion and virtually nothing on the moderating effect of one negotiator's risk preference on the other negotiator in a dyad. Further, bargaining models are typically based on Subjective Expected Utility theory, which provides no scope for incorporating the decision maker's tolerance for ambiguity. An experiment was conducted to test specific hypotheses on the effect of risk preference and tolerance for ambiguity on negotiator effectiveness. The risk preference of the negotiators was experimentally induced while their tolerance for ambiguity was measured. The results indicate that negotiator effectiveness increases as the negotiator's preference for risk increases, though this increase is mitigated by the risk preference of the dyadic partner. Further, when the negotiators in a dyad are matched on risk preference, the negotiator with a greater tolerance for ambiguity is more effective. However, when the negotiators are not matched on risk preference, their attitude towards ambiguity moderates the effect of risk preference. These results suggest that bargaining models need to include both risk preference and tolerance for ambiguity to expand their descriptive power.

Decisions in the real world usually involve imprecise information or uncertainty about the precesses by which outcomes may be determined. This research reports the results of a laboratory experiment which examined whether the structure of uncertainty, namely, both the center and the range of the probability distribution describing the uncertainty, is an important determinant of choice. Specifically, it examines how the uncertainty of audit by the Internal Revenue Service of income tax returns affects taxpayers' decisions about intentional noncompliance. The context is relevant as almost nothing is known about how taxpayers assess detection risks using the probability information they have. The study focuses on intentional noncompliance. The factors affecting it are distinct and separate from those affecting unintentional noncompliance. Other factors that affect intentional tax noncompliance, such as risk, tax rates, and penalty rates, were controlled in the experiment. It was hypothesized that the lower the mean and the lesser the range (ambiguity) of the perceived audit probability, the greater the international noncompliance. As hypothesized, the analysis indicates that both the mean and the range of the perceived audit probability rate affect intentional noncompliance, though the effect of ambiguity is greater at a relatively higher level of mean. This result suggests that the strength of the information describing an uncertain event is captured better by both the mean and the range of the uncertainty than either of those components singly.

Although recent research has identified attitudes towards ambiguity and risk to be important determinants of choice behavior [8] [18], no prior work jointly assessed the roles of both attitudes. We conducted a laboratory experiment using a real decision scenario and conducted exploratory analyses of the relationship between attitudes towards risk and ambiguity and the decision taken by the subjects. The results support the prediction that attitudes towards both risk and ambiguity affect choice behavior. Our exploratory analyses indicate interesting avenues for future research, including an examination of the decision process itself.