“We prefer options that are certain”
People tend to select options for which the probability of a favorable outcome is known (over an option for which the probability of a favorable outcome is unknown).
The ambiguity effect is relevant when a decision is affected by a lack of information, or “ambiguity”. The effect implies that we tend to select options for which the probability of a favorable outcome is highest. We simply have a reluctance to accept offers that are risky or uncertain.
- Over an initial range, women require no further compensation for the introduction of ambiguity whereas men do.
- Curiosity increases attention, thus is induced by mild doses of uncertainty.
Scientific research example:
Imagine a bucket with thirty red, black, and white-colored balls. Ten of the balls are red (for sure), the others are ‘some combination’ of black and white (all combinations being equally likely).
Now you can choose between one of two games:
- Game ‘red’: drawing a red ball wins you $100
- Game ‘black’: drawing a black ball wins you $100
What do you choose? Well, most people tend to favor the ‘red’ game. Now, the probability of picking a winning ball is the same for both games (1 in 3). So why is the red game preferred? Well, simply because the probability of winning is known. The red game is less “ambiguous”.
One of the theoretical explanations for this ‘Ellsberg Paradox’ seeks the cause in our experiences with deception. We are suspicious people in situations where we are not told what the probability of an event is. This is because often – in real-life commercial situations – it is usually in favor of the supplier if he does not tell us how big a chance is. Our brain is simply afraid (and has an aversion) to be fooled.