The role of intuition and reasoning in driving aversion to risk, aversion to ambiguity and regret

Luigi Guiso & Tullio Jappelli

A large literature emphasizes the different roles that risk aversion, aversion to ambiguity, and regret may have in explaining behavior. These preference parameters have been largely regarded as unrelated and meant to capture features of individual preferences towards different dimensions of the uncertainty they face. Using information on a large sample of individual investors we find that these attitudes tend to be correlated: individuals who dislike risk also dislike ambiguity and tend to be more regret prone. We show that what links together these traits is the way people handle decisions, whether they rely mostly on intuition or on reasoning.

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