The Fun and Function of Uncertainty

How do people behave under uncertainty? Specifically, how do people respond to incentives associated with exogenous uncertainty (e.g., a payment of $10 or $20 with even chances)? Both lay intuition and decision theories expect uncertainty aversion. However, I found that under specific circumstances, uncertainty can be motivating. In those predictable situations, people work harder under an uncertain incentive than under a certain incentive, even when the uncertain incentive ($10 or $20 with even chances) is strictly worse than the certain incentive ($20 for sure). I further propose a theoretical framework to reconcile “uncertainty loving” that I found in my research with “uncertainty aversion” in extant behavioral decision-making literature. This theoretical framework sheds light on why people behave differently under uncertainty under different circumstances.

Luxi Shen (PhD, University of Chicago Booth School of Business) studies judgment and decision making, and consumer behavior. Her recent research focuses on the general topic of uncertainty in pricing strategies and incentive designs; for example, she explores when and why consumers expend more effort to earn an uncertain reward than a certain reward. Shen's work has been published in top academic journals, including Journal of Marketing Research, Journal of Consumer Research, Psychological Science, and Organizational Behavior and Human Decision Process. Shen is currently an Assistant Professor of Marketing at CUHK Business School, Chinese University of Hong Kong, where she teaches Marketing Management and Marketing Strategies (both offered in English).