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)
“My true friends have always given me that supreme proof of devotion, a spontaneous aversion for the man I loved.”
—Colette [Sidonie Gabrielle Colette] (1873–1954)
“I saw the man my friend ... wants pardoned, Thomas Flinton. He is a bright, good-looking fellow.... Of his innocence all are confident. The governor strikes me as a man seeking popularity, who lacks the independence and manhood to do right at the risk of losing popularity. Afraid of what will be said. He is prejudiced against the Irish and Democrats.”
—Rutherford Birchard Hayes (1822–1893)