In decision theory and economics, ambiguity aversion (also known as uncertainty aversion) describes an attitude of preference for known risks over unknown risks. People would rather choose an option with fewer unknown elements than with many unknown elements. 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). There are a number of choices involving uncertainty and normally they can be classified in two categories: risky and ambiguous events. Risky events have a certain probability for a given outcome. Ambiguous events have a much greater degree of uncertainty. This includes the uncertainty of outcome and also the probability of an event occurring or the payoff associated with such events. The reaction is behavioral and still being formalized. Ambiguity aversion can be used to explain incomplete contracts, volatility in stock markets, and selective abstention in elections (Ghirardato & Marinacci, 2001)
Read more about Ambiguity Aversion: Ambiguity Aversion Vs. Risk Aversion, Measurements of Ambiguity Aversion, Gender Difference in Ambiguity Aversion, A Framework That Allows For Ambiguity Preferences, An Examination of Ambiguity Aversion: Are Two Heads Better Than One?, Ambiguity Aversion in Real Options
Famous quotes containing the words ambiguity and/or aversion:
“Unlike the ambiguity of life, the ambiguity of language does reach a limit.”
—Mason Cooley (b. 1927)
“Quintilian [educational writer in Rome around A.D. 100] thought that the earliest years of the child’s life were crucial. Education should start earlier than age seven, within the family. It should not be so hard as to give the child an aversion to learning. Rather, these early lessons would take the form of play—that embryonic notion of kindergarten.”
—C. John Sommerville (20th century)