Essays on the Impacts of Environment on Uncertainty Attitudes and Consumption Choices

This thesis comprises three essays on the impact of the environment (i.e. objects or conditions which surround people) on uncertainty attitudes. The first chapter reports an online experiment by mimicking screen colours frequently used in asset trading software platforms and evaluates the impact of the graphical interface on decisions in risk and uncertainty. The findings in this chapter provide empirical evidence that people’s judgment in uncertainty depends on factors well beyond the traditional formulation of uncertainty through a set of state-contingent payoffs, and that the impact of these factors demonstrates disassociation between decisions in risk and in ambiguity. The next essay shows that people’s attitudes are sensitive to the inflow of information within their nation (environment). The announcement (a hike of interest rates) although positive and well anticipated, resulted in different reactions to the news. The media coverage prior to and after a monetary policy announcement creates different informed environment which affect people’s aversion to ambiguity and risk. The effect is detectable by controlling for individuals’ exposure to monetary policy news, and by disentangling precise news (after the announcement) and imprecise information (media discussions on change in monetary policy). These effects on individuals’ attitudes are driven by the channels for receiving economic information. The third chapter explores the expectation effects further by investigating the relationship between people’s uncertainty attitudes and their allocation of marginal income to consumption. This essay shows that people increase their marginal allocation to expenses when the associated risk and ambiguity aversion is high. The main results show that the ambiguity aversion explains the increased marginal allocation to household and discretionary expenses and contradicts other theories.