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Ambiguity and Ambiguity Aversion

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Abstract

Consider the following choice problem, known as ‘Ellsberg’s three-colour urn example’, or simply the ‘Ellsberg paradox’ (Ellsberg, 1961). An urn contains 30 red balls, and 60 green and blue balls, in unspecified proportions; subjects are asked to compare (a) a bet on a red draw with a bet on a green draw, and (b) a bet on a red or blue draw with a bet on a green or blue draw. If the subject wins a bet, she receives ten dollars; otherwise, she receives zero dollars. To model this situation as a problem of choice under uncertainty, let the state space be {S r , S g , S b } in obvious notation, and consider the bets in Figure 1.

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Authors
  1. Marciano Siniscalchi
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Editor information

Steven N. Durlauf Lawrence E. Blume

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© 2008 Palgrave Macmillan, a division of Macmillan Publishers Limited

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Siniscalchi, M. (2008). Ambiguity and Ambiguity Aversion. In: Durlauf, S.N., Blume, L.E. (eds) The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-58802-2_36

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  • DOI: https://doi.org/10.1007/978-1-349-58802-2_36

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  • Publisher Name: Palgrave Macmillan, London

  • Print ISBN: 978-0-333-78676-5

  • Online ISBN: 978-1-349-58802-2

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