Too much or too little information: how unknown uncertainty fuels time inconsistency

Under uncertainty, there is considerable heterogeneity in expectations of results, and the outcome of each choice is a reflection of those expectations. This study aims to understand the role of subjective probabilistic inference in updating information for decision-making procedures under uncertainty. We show that adding uncertainty of trade-offs in decision-making criteria induces more inconsistent present preferences. We find that subjective probabilistic inference results in different levels of information acquisition, which plays a central role in many everyday cases of forecasting. The result of forecasting exerts substantive constraints on cognitive processes and shapes a type of restriction or stimulus in decision-making procedures. As uncertainty increases, generated fear of losses turns into an obstacle to the information acquisition process, and especially participants with low probabilistic inference tend to overestimate or underestimate future unknown rewards. In addition, our experiment shows that risk preference does not play a key role in decision-making procedures under unknown uncertainty. This finding is an experimental manifestation of Knight's argument (Risk, uncertainty, and profit, Houghton Mifflin, Boston, 1921), which explains unknown uncertainty, and shows the relationship between cognitive ability and time inconsistency.

The online version contains supplementary material available at 10.1007/s43546-021-00189-9.