The Ellsberg Paradox documented the aversion to ambiguity in the probability of winning a prize. Using an original sample of 266 business owners and managers facing risks from climate change, this paper documents the presence of departures from rationality in both directions. Both ambiguity-seeking behavior and ambiguity-averse behavior are evident. People exhibit ‘fear’ effects of ambiguity for small probabilities of suffering a loss and ‘hope’ effects for large probabilities. Estimates of the crossover point from ambiguity aversion (fear) to ambiguity seeking (...) (hope) place this value between 0.3 and 0.7 for the risk per decade lotteries considered, with empirical estimates indicating a crossover mean risk of about 0.5. Attitudes toward the degree of ambiguity also reverse at the crossover point. (shrink)

Optimal protective responses to long-term risks depend on rational perceptions of ambiguous risks and uncertain time horizons. Our study examined the joint influence of uncertain delay and risk in an original sample of business owners and managers. We found that many subjects disliked uncertainty in the timing of an outcome, a reaction we term ``lottery timing risk aversion.'' Such aversion to uncertain timing was positively related to aversion to ambiguous probabilities for lotteries involving storm damage risks. This association suggests that (...) uncertainty may be processed similarly in both the risk and time dimensions. (shrink)

This book is the culmination and synthesis of Viscusi's distinguished work in the social regulation of risk.