False Consensus and the Role of Ambiguity in Predictions of Others’ Risk Preferences


Borgsen, Sina ; Weber, Martin


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URL: http://ub-madoc.bib.uni-mannheim.de/2283
URN: urn:nbn:de:bsz:180-madoc-22835
Document Type: Working paper
Year of publication: 2008
Publication language: English
Institution: Business School > Sonstige - Fakultät für Betriebswirtschaftslehre
MADOC publication series: Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre (Weber) > Working Papers
Subject: 330 Economics
Classification: JEL: D8 G1 ,
Subject headings (SWD): Entscheidung bei Unsicherheit , Risikoverhalten , Nutzen , Anlageverhalten , Experiment
Keywords (English): Risk Attitude , Ambiguity , False Consensus Effect , Prediction Error
Abstract: Already in the 1930ies psychologists mentioned the tendency of people to see the self as the center of social judgment. This leads to egocentrically biased judgments when assessing others’ behavior. Since the first demonstration of this social projection bias in a study by Ross, Greene, and House (1977) a lot of studies followed. They show the effect in different contexts and the false consensus effect became a widely accepted phenomenon. In this paper we analyze the false consensus effect in a financial context. In two studies, we use simple lottery questions and ask subjects to state certainty equivalents for the own person and also to predict the average certainty equivalent of other participants. We find a strong correlation between the own judgment and the prediction of others’ judgments. As we use 50/50-lotteries and in addition ambiguous probabilities in our studies, we extend the scope of Gilovich (1990) to financial decisions. The false consensus effect is stronger in situations with ambiguity. We also asked participants to give an interval for the certainty equivalents, i.e. a lower bound that they think is not fallen short by more than 5 % of the participants and also an upper bound which is not exceeded by more than 5 %. We find that people strongly underestimate the variation in others’ risk preferences.
Additional information: Available at SSRN: http://ssrn.com/abstract

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.




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Borgsen, Sina ; Weber, Martin (2008) False Consensus and the Role of Ambiguity in Predictions of Others’ Risk Preferences. Open Access [Working paper]
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