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:
“Legends of prediction are common throughout the whole Household of Man. Gods speak, spirits speak, computers speak. Oracular ambiguity or statistical probability provides loopholes, and discrepancies are expunged by Faith.”
—Ursula K. Le Guin (b. 1929)
“Our aversion to lying is commonly a secret ambition to make what we say considerable, and have every word received with a religious respect.”
—François, Duc De La Rochefoucauld (1613–1680)
“If the only new thing we have to offer is an improved version of the past, then today can only be inferior to yesterday. Hypnotised by images of the past, we risk losing all capacity for creative change.”
—Robert Hewison (b. 1943)