Ambiguity aversion

Ambiguity aversion

Ambiguity aversion (also known as uncertainty aversion) describes an attitude of preference for known risks over unknown risks. It is demonstrated in the Ellsberg paradox (i.e. that people prefer to bet on an urn with 50 Red and 50 Blue balls, than in one with 100 total balls but where the number of blue or red balls is unknown).

Note that it is not the same as risk aversion, since it is a rejection of types of risk based in part on measures of their certainty, not solely on their magnitude.

ee also

*Precautionary principle
*Uncertainty
*Choquet expected utility

References

*"Subjective Probability and Expected Utility without Additivity", David Schmeidler, "Econometrica", Vol. 57, No. 3. (May, 1989), pp. 571-587.
*"A Definition of Uncertainty Aversion", Larry G. Epstein, "The Review of Economic Studies", Volume 66 (July 1999), p. 579.


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