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:
“Unlike the ambiguity of life, the ambiguity of language does reach a limit.”
—Mason Cooley (b. 1927)
“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)
“Do you want me to tell you something really subversive? Love is everything it’s cracked up to be. That’s why people are so cynical about it.... It really is worth fighting for, being brave for, risking everything for. And the trouble is, if you don’t risk anything, you risk even more.”
—Erica Jong (b. 1942)