Ambiguity Aversion - Ambiguity Aversion Vs. Risk Aversion

Ambiguity Aversion Vs. Risk Aversion

The distinction between ambiguity aversion and risk aversion is important but subtle. Risk aversion comes from a situation where a probability can be assigned to each possible outcome of a situation. Ambiguity aversion applies to a situation when the probabilities of outcomes are unknown (Epstein 1999). The main idea behind ambiguity aversion encompasses the idea of risk aversion. A real world consequence of increased ambiguity aversion is the increased demand for insurance because the general public are averse to the unknown events that will affect their lives and property (Alary, Treich, and Gollier 2010).

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Famous quotes containing the words ambiguity, aversion and/or risk:

    There is no greater impediment to the advancement of knowledge than the ambiguity of words.
    Thomas Reid (1710–1769)

    Our books are false by being fragmentary: their sentences are bon mots, and not parts of natural discourse; childish expressions of surprise or pleasure in nature; or, worse, owing a brief notoriety to their petulance, or aversion from the order of nature,—being some curiosity or oddity, designedly not in harmony with nature, and purposely framed to excite surprise, as jugglers do by concealing their means.
    Ralph Waldo Emerson (1803–1882)

    If you love the good thing vitally, enough to give up for it all that one must give up, then you must hate the cheap thing just as hard. I tell you, there is such a thing as creative hate! A contempt that drives you through fire, makes you risk everything and lose everything, makes you a long sight better than you ever knew you could be.
    Willa Cather (1873–1947)