Decision making under uncertainty: Ambiguity preferences

David Schröder, Associate Professor in Finance at Birkbeck’s Department of Economics, Mathematics and Statistics, and Elisa Cavatorta, Associate Professor in the Department of Political Economy at King’s College London, have developed a questionnaire to measure how members of the public make decisions under uncertainty. Take the survey online to find out your ambiguity preferences.

Cartoon of a figure at a crossroads

This article was originally posted on the Research Outreach blog and is licensed under a Creative Commons Attribution 4.0 International License.

Every decision and action that we take in life is associated with a degree of uncertainty; whether we cross a road, what we invest our money in, what career we follow and the thousands of other decisions that we make on a daily basis. Over the years, economists and psychologists have studied different factors that affect how individuals make decisions under uncertainty so that they can better understand what drives the behaviours that we see in the world.

One of the underlying factors that explain individual behaviour under uncertainty is the different degree of tolerance anyone has for situations of uncertainty, in other words their individual preferences. To apply the behavioural models proposed in the scientific literature, it is important to accurately measure these preferences driving our behaviour. Elisa Cavatorta, Associate Professor at the Department of Political Economy at King’s College London, and David Schröder, Associate Professor in Finance at Birkbeck, University of London, noticed that existing approaches to measure uncertainty attitudes are overly complex and therefore rarely used to measure preferences outside economic laboratories. To improve the ability to measure uncertainty attitudes and make their measurement more accessible, they designed a new questionnaire to facilitate the assessment of the preferences guiding everyday decision making under uncertainty.

Understanding risk and ambiguity

The most common factor that people associate with decision making under uncertainty is risk, and how tolerant an individual is towards risky scenarios. In a risk-based situation, we have a sense of the likelihood of the different outcomes that our decisions could deliver. For example, if you roll a fair dice, you know that you have a one in six chance of getting a specific number. Likewise, outcomes of recurring situations may involve known likelihoods: if your parent cooks their usual signature dish, you know the chances that it tastes delicious.

In many situations however, there is an additional degree of uncertainty about the potential outcomes of our decisions and actions. For example, if you hear that the dice that you are about to use has a flaw that means it will not roll fairly, you can no longer accurately predict the likelihood of rolling the number four. If a stranger cooks for you, the probability that the dish is delicious can be vague. Thanks to the work of Knight (1921) and Ellsberg (1961), this degree of uncertainty over vague or unknown probabilities is referred to as ambiguity. Different people have a different “taste” for the lack of accurate information about the probabilities of given outcomes and will respond differently.

Our preferences towards ambiguity guide the decisions that we make under uncertainty. There isn’t an optimal decision that fits all. Optimal decisions for everyone depend on one’s own preferences. If we can accurately measure ambiguity preferences, then we have a powerful insight into human behaviour, that is, how people make choices subject to limited information.

Measuring ambiguity preferences

Traditionally, ambiguity attitudes have been measured within a controlled economic laboratory environment. Ambiguity tests have focused on specific decision tasks involving known and unknown probabilities, often complex to understand and requiring lengthy explanations. This method has produced very accurate results; however, the complexity of these tasks makes them impractical to roll out on a large enough scale to understand the decision-making behaviours that we see in the general population.

Elisa Cavatorta and David Schröder researched ambiguity preferences in great detail. They started from the results in a laboratory setting, but the researchers were motivated to find a more practical way of measuring ambiguity preferences outside of these experiments. They knew that an online survey questionnaire or a questionnaire that could be conducted by telephone would be a far more practical mechanism for collecting data from much larger groups of participants and be more practical for researchers who conduct field studies.

Survey design

Cavatorta and Schröder have designed a simple survey questionnaire, which accurately measures ambiguity preferences. Their work has been inspired by various studies that recommended using surveys to measure other economic preferences. In their 2019 paper, they develop a measurement for ambiguity preferences, adding to existing ones designed to elicit preferences for risk, trust and impatience.

The research team developed their questionnaire using a sample of 121 students from various colleges of the University of London. The idea was to find the best combination of survey questions that would most accurately predict ambiguity preferences elicited with the well-established approach in the laboratory setting. The challenge was to find the best combination of these survey questions. The research team selected around 50 possible candidate survey questions of various types. Some of these questions are short thought-experiments where participants make choices in some hypothetical games (e.g. selecting the preferred option between one unknown, i.e., ambiguous, probability and one with known probability, i.e. risky). Some questions are attitudinal questions from the psychology literature, in which participants assess how much they like or dislike a situation.

The researchers considered the predictive power of all combinations of the candidate questions. Using a selection process that evaluates all possible combinations and then selects the best predictors is a data-driven method that minimises forms of bias in the selection process. The result is a five survey-item questionnaire that provides an individual ambiguity preferences score that correlates well with the ambiguity preference score that would come out in a laboratory setting. This means the survey questionnaire is an accurate substitute when measurement in the laboratory is impractical or unavailable.

Possible uses of the new measurement

The professors recommend their measurement whenever incentivised experiments in a laboratory are not feasible, for example, when researchers need to gather ambiguity preferences of a large number of participants, field-studies, or in scenarios where time or money is limited.

This questionnaire provides the opportunity to conduct large-scale studies into the impact of ambiguity preferences on economic and social behaviour. Given the uncertainty surrounding many decisions in every-day life, applications of the measurement can be wide-ranging. The current pandemic demonstrates people have different preferences for ambiguity and this guides different reactions and health behaviour. Another application concerns the financial services industry: the industry has traditionally focused on risk preferences when recommending the most suitable investment options to its clients. Risk preference assessments help us to understand one element of what makes an investment a good match for an individual. However, investments often involve unknown risks (i.e. ambiguity), so the measurement can assist financial services professionals to better tailor their product recommendations to the client’s tastes and needs.

Further Information

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Managing the ‘always on’ culture – a myth buster and agenda for better practice

Professor Almuth McDowall (Department of Organizational Psychology) shares her research into worklife balance and calls on employers to take responsibility for their organisation’s culture.

Break, Business, Business People, Businesswoman, Cafe

There is much being written and said about the ‘always on culture’ and how we are increasingly glued to our digital devices – whether at work or at home. Some of my own research has also concerned itself with this topic. My colleague and friend Gail Kinman and I had the results from a practice survey published in 2018 as we wanted to know what organisations are doing about the changing world of work, and the use of information and computer technology.

Well, precious little is the answer. Over half of our respondents said that their organisations don’t have a relevant policy in place and don’t offer any guidance or training. Somewhat worryingly over 40% thought that it should be up to individuals to manage the issue, rather than their line managers or human resources.

Why would people choose to be ‘always on’ outside formal working hours?

Working unpaid during leisure time does not make logical sense! We gift the UK economy billions in unpaid overtime year on year, as research by the Trade Unions Congress has revealed. Our systematic review with colleagues Svenja Schlachter, Ilke Inceoglu and Mark Cropley pointed to a complex picture.

People have different motivations, influenced by issues such as what everyone else does (social norms), what the expectations in the job are, how committed people feel to their job, how they value ‘switching off’ and recovery and whether this is supported in their environment. One key issue which came out of this review is the ‘empowerment enslavement paradox’. Our digital devices are both an enabler, as they afford flexibility, but also ‘digital leash’ as it’s difficult to say ‘enough is enough’ and switch off. As we all know, screen-time can be very seductive.

Is there any evidence that being ‘always on’ is bad for our health?

A recent econometric analysis shows that ICT infrastructure has a positive impact on population health (the authors measured general health outcomes such as infant mortality etc.). Regarding the impact of social media use, there is evidence that high use is linked to poor sleep quality, anxiety depression and low self-esteem. Of course, such studies cannot tell us whether teenagers who are highly anxious to start off with are more likely to be prolific users.

There is far less robust evidence on the exact effects from the world of work – what happens to you if you are on your phone, tablet or laptop near 24/7? We lack good research to tell us what the exact effects are.

What we do know though is that we need recovery and respite, our systems are simply not programmed to be on continuous overdrive. We also know that leisure activities which are quite different from our work tasks are better for our recovery than doing more of the same. I take this to heart. For instance, I find that reading at night doesn’t help me switch off as academics read rather a lot at work, so I take ballet classes online (and am known to teach the odd one myself!), knit and crochet.

What can organisations do?

Employers have a duty of care and should ensure that people are not overworked and can switch off. Worklife balance research tells us that those who live ‘enriched’ lives have better mental and physical health, important for them, and important for their employer. We should actively support employees by ensuring that:

  • A worklife balance policy is in place as a point of reference; then check processes and structures against this policy
  • Employers review job design and ensure that digital tasks (checking and responding to emails, synchronising devices, remote calls and conferences) are actually captured in people’s workload and tasks – these often fall off the radar
  • There is consultation to ask employees what they need – mutually negotiated boundaries and solutions work much better. Think creatively about flexible solutions!
  • Everyone, including senior leaders and managers, role models good behaviours. People need time to switch off, so don’t expect your staff to be available outside normal working hours
  • Staff are offered training and development. Managing in an increasingly digital workspace requires up-to-date management and leadership skills
  • Employees look out for implicit expectations and ‘rumours’. “I check my emails on holiday because this is what is expected of me”. Really? Question such assumptions as they can often take on a life of their own

Finally, if in doubt, ask a psychologist. The Department of Organizational Psychology is keen to work with organisations to establish, consolidate and evaluate best practice.

Further information:

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Examining the class system in British museum employment

Sam Evans, a PhD researcher at the Department for Organizational Psychology, is leading a series of focus groups which will ask participants to reveal what it takes to get in and get on in the museum sector, and how social class shapes career chances and experiences.

I’m interested in how inequality is reinforced in the workplace. Class, until recently, has been surprisingly absent from the debate. Research into diversity or equality, often overlooks class, as does occupational psychology in general. Part of the reason for this absence is that class is not a legally protected characteristic, like age or gender, but also it is argued that there has been a more fundamental ‘individualisation’ of Western culture.

Class identities have become more difficult to see or express in the workplace. Our careers are thus seen as our responsibility, and we don’t often think or talk about the structural inequalities that might frame this. However, there is research suggesting inequality at work is increasing, professions are becoming more not less exclusive, and social mobility is declining.

I want to explore these issues in-depth in my research project, The Museum of Them and Us; I am interested not just in how people are classed, but also occupations, roles and organisations. I am particularly interested in why some careers and types of work favour some groups of people and not others. We assume anyone can get in and get on, no matter how tough, given they have the right personal qualities. But what is this really like for people from different backgrounds? I have chosen to look at museums, partly because I am familiar with the field, but also because visiting and working in museums is described as middle class. But why is this, does this account for all types of work, and what does this mean for people who might not be from middle-class backgrounds.

I don’t have a fixed definition of the term ‘class’ (this is a subject that has been debated for 150 years and most researchers recognise there is no one single definition), but am using Pierre Bourdieu’s concept of capital of class. This involves looking at the types of economic, social or cultural capital that are valued within different types of museum work and how this relates to the type of capital people actually have, or are able to acquire. Cultural capital is particularly important as this relates to accent, dress, education and knowledge of particular types of culture, and is often highly valued in cultural work.

I have already conducted interviews with representative bodies, trade unions and membership bodies as well as analysing reports and websites to look at how ‘getting and getting on is described’. I have found that, as with other research, museum work has become less secure and more competitive. The onus seems to be on the person to develop themselves as specialist and professional, and yet also flexible and versatile. This potentially makes it riskier and less beneficial for anyone entering the field. Class was talked about but was often described as difficult to see or measure, and most diversity initiatives were aimed at developing the individual to fit the required ways of working, rather than look more closely at how ways of working might be creating inequalities.

With the focus groups and interviews, on the one hand, I am asking people to talk about their work – what it takes to get in and on, how this might have changed, how this might be different for different roles, are some roles held in higher esteem than others and why. On the other hand, I want to talk about social class – what does it mean to people, do they think class matters and if so, how? I am also asking people to contribute images or photos that they think represent their work.

Take part in the focus groups:

If you have worked or volunteered for a museum you can take part in a focus group or an interview. If people think that class has mattered to them in particular, I am also conducting private interviews.

Taking part is confidential, enjoyable and you will be helping the sector. To take part in a focus group or an interview and for further information, please contact me or visit my website.

Thursday 5 April
6PM – 7.30PM, Birkbeck Main Building, Room MAL 420, Malet Street, WC1E 7HZ  

Wednesday 11 April
6.30PM – 8PM, Birkbeck Main Building, Room MAL 420, Malet Street, WC1E 7HZ.

Thursday 26 April
6PM – 7.30PM, Museums Association Offices, 42 Clerkenwell Close, London, EC1R 0AZ

Friday 18 May
2.30PM – 4PM, Birmingham Museum and Art Gallery, Chamberlain Square, Birmingham B3 3DH

Wednesday 23 May
6PM – 7.30PM, Museums Association Offices, 42 Clerkenwell Close, London, EC1R 0AZ

Thursday 7 June
4PM – 5.30PM, Whitworth Gallery, The University of Manchester, Oxford Road, Manchester, M15 6ER

Thursday 14 June
5.30PM – 7PM, M Shed, Princes Wharf, Wapping Road, Bristol, BS1 4RN

Or schedule an interview:
If you think social class has mattered to you personally in your work or career then you can take in part in an individual interview, by email, Skype or face to face (depending on your location).

If you are interested in finding out more, please contact Sam directly.

About Sam:

I studied History originally, and then spent about 25 years working in marketing in the museum, cultural and public sectors. A lot of my work was really about understanding people and organisational cultures as much as ‘doing’ marketing, hence my interest in studying organisational psychology.  I started studying part time about 8 years ago, first obtaining a degree in psychology at OU, then moving on to the MSc in Organisational Psychology at Birkbeck.

About the same time as graduating, I was made redundant, which forced a decision – stick to the marketing “battleship” I knew, or jump onto the less stable “raft” of psychology. I had already met some PhD students and Dr Rebecca Whiting who became my supervisor, and thought I would really like to study for a PhD here. So when I was offered a studentship, I took the leap. It’s been one of the best decisions I’ve ever made!

From Dr Rebecca Whiting, a lecturer in the Department of Organisational Psychology and Sam’s PhD supervisor:

Sam brings a wealth of experience to her research from working in this sector and an intellectual rigour from her academic training. Class is a challenging concept to research because of the many and sometimes conflicting ways in which its conceptualised and measured.

Many definitions reflect the relationship between class and socio-economic and cultural status. However, since class is not a ‘protected characteristic’ under the Equality Act 2010, it doesn’t always appear as an aspect of diversity in organizations, so is ripe for critical investigation. Museums are key locations of our socio-cultural heritage but are an under-researched context in organizational and occupational research.

This highlights the importance of Sam’s research which brings together this topic and context to explore how class impacts on museum work.

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Birkbeck’s BabyLab: Investigating neural underpinnings of the social brain

Anna Kolesnik, PhD candidate in Birkbeck’s Centre for Brain and Cognitive Development (CBCD) discusses the research in motion at the BabyLab, and why we’re crowdfunding to extend this research to toddlers.

How do babies become experts at processing the social world? Can we identify early neural correlates of this specialisation?

Previous investigations carried out at the BabyLab have explored rhythmic activity in the brain in response to social stimuli, finding evidence for early specialisation to faces and gaze as early as 4 months of age. Throughout the second half of the first year, we have seen evidence for increased perceptual narrowing in several aspects of cognition, allowing more efficient processing of incoming information. We also know that by age 2-3 years, toddlers become experts at navigating the social world and tune their attention to relevant information sources. This is also the time where first behavioural symptoms of neurodevelopmental disorders such as Autism emerge. Majority of our current understanding comes from cross-sectional research, which captures a ‘snap-shot’ in development. Here at the BabyLab, we want to study the early years continuously, which will increase our ability to identify and propose intervention strategies for infants at risk.  

GAmma and Brain-Based LanguagE Specialization study (GABBLES)
As part of my PhD project, I am running a longitudinal study with typically developing infants which aims to understand the neural basis of auditory and intercessory processing in the first year of life by examining changes in rhythmic neural activity in the brain. Using the predictions set out by Professor Mark Johnson’s ‘Interactive Specialisation’ framework, one of the leading theories of development in the field, we hope to isolate the fundamental sensory processes which precede the infants’ first words

Families with 5-month-old infants were recruited to take part in the study at the BabyLab in the Centre for Brain and Cognitive Development, with additional visits at 10 and 14 months. Fourteen babies form a subgroup of bilinguals, as they are exposed to a language other than English for a significant time. The testing protocol included tasks to evoke oscillatory activity in auditory and visual areas of the brain (which we record from passive sensors placed on the baby’s head). They also completed an eye-tracking session, which measured several aspects of pre-verbal language development and comprehension– including word recognition, language preference, and syllable matching tasks. These were accompanied by a standardised assessment of the infant’s cognitive and motor abilities. After the three visits were complete, parents were asked to complete questionnaires on their child’s behaviour, language and sleep until their children turn 2 years. Currently, data collection is almost complete and our lovely participants are entering toddlerhood.

Future directions
At present time, we are only able to collect parent-report questionnaires about language and social abilities of their toddlers. In some ways, this is useful as we can capture some individual differences in development on a behavioural level (i.e. language experience and vocabulary), and then go back and look at possible biomarkers (activation to a native vowel or attention to native/non-native speakers). Being able to follow up these children using wireless technology once they are verbal and actively engaging with the outside world would provide enormously rich insight into how our early brain specialisation affects later functional development. Further, we may be able to identify critical periods of maturation and change in order to generate the most effective interventions and improve outcomes in children with autism.

We are aiming to secure £30,000 in donations for the equipment for the new ToddlerLab. If you are interested in donating and contributing to the centre’s crucial research into children’s development, please see our crowdfunding campaign page.

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