Are the poor worse at dealing with ambiguity?

Abstract

This paper studies the relationship between people’s ambiguity attitudes and income in the field using language as a natural source of ambiguity. It shows that the method of Baillon et al. (2017b) can be adapted for field studies, providing ambiguity measurement tasks that are more comprehensible for nonacademic subjects. Ambiguity attitudes were elicited in two groups of Chinese adolescents (poor rural and rich urban), among whom the income variation is big. In the rural group the poorer are both more ambiguity averse and more a-insensitive, whereas in the urban group the richer are more a-insensitivite. On average, the poor rural adolescents are worse at dealing with ambiguity than their urban counterparts. A-insensitivity, which measures people’s understanding of an ambiguous situation, is an important but sometimes neglected component of ambiguity attitude. Policies aiming to help people improve decisions may focus more on reducing a-insensitivity as this cognitive bias is more likely to be influenced by intervention than people’s intrinsic aversion towards ambiguity.