Friday, April 06, 2012

The Psychology of Ambiguity 2: Ambiguity Bias

You have a choice. You are at work and you have to make a business decision between 3 options each of which will take the same effort:
Business Option 1 will almost certainly make you $10,000. It is quite likely (over 80% probability) this option will work and you will make the money.
Business Option 2 could make you $20,000. However you no idea what the probability of this option working is.
Business Option 3 could make you anything. You don't know how much it might make or what the probability is that it will work.

You have to make a decision right now or option 1 will disappear. Which option would you take and why?

The Ambiguity Bias or Ambiguity Effect is a bias where people are affected by the lack of information or the amount of ambiguity inherent in a situation. In other words most people tend to prefer known situations even though they might not be the most advantageous. People tend to prefer certainty over ambiguity.


Baron, J. (2000). Thinking and deciding (3d ed.). New York: Cambridge University Press.
Ellsberg, D. (1961). Risk, ambiguity, and the Savage axioms. Quarterly Journal of Economics, 75, 643–699.Frisch, D., & Baron, J. (1988). Ambiguity and rationality. Journal of Behavioral Decision Making, 1, 149-157.Ritov, I., & Baron, J. (1990). Reluctance to vaccinate: omission bias and ambiguity. Journal of Behavioral Decision Making, 3, 263-277.Wilkinson, D.J. (2006). The Ambiguity Advantage: what great leaders are great at. London: Palgrave Macmillian.

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