As with other cognitive biases, there are several theories behind why the ambiguity effect occurs. One is that it is a rule of thumb that is useful for quick, effortless decision-making and problem-solving. Another is that higher levels of ambiguity aversion, a common behavior that many of us engage in, make people more likely to exhibit this bias.
Rule of thumb
It has been suggested that the ambiguity effect is the result of a heuristic used to facilitate decision-making. Like other heuristics, it acts as a guideline for describing a general approach to problem-solving. This strategy occurs automatically and effortlessly, and can help you reach a conclusion quickly. Heuristics have endured for as long as they have because they are often right. However, by using them, we risk drawing a conclusion that is inaccurate or misinformed, because we fail to use logic and reason.
To an extent, the ambiguity effect is an adaptive response. People prefer options that they feel well-informed about to options that they feel leave too much to the imagination. This can be useful for avoiding options for which we genuinely have too little information to go on. Even better, the ambiguity effect can lead us to seek out more information about the ambiguous option, so as to make a more informed decision.1
This rule of thumb does work on some occasions. That being said, over-reliance on this heuristic is not ideal. As explained by Frisch and Baron,2 the ambiguity effect is a type of framing effect, such that any option can be made to seem ambiguous or unambiguous, simply by drawing attention to or away from certain unknown elements of it. Essentially, one can never know everything about a given option. Believing that one does can simply be the result of “a lack of imagination about what information one could have.” Thus, while using this heuristic certainly makes decision-making easier, it is not nearly reliable, nor effective, enough for it to be used in all situations. This is especially true when it comes to making decisions that carry a lot of weight.
Say you’re presented with two options. The probability of the first option resulting in a certain favorable outcome is known. In contrast, the probability of the second option resulting in said outcome is unknown. If you tend towards the latter option, you’re exhibiting a behavior referred to as ambiguity aversion. It’s this distaste for ambiguity that drives the ambiguity effect.
Although they are similar, ambiguity aversion and risk aversion are two distinct behaviors.3 It’s important to differentiate between them in order to accurately grasp the concept of ambiguity aversion. Risk aversion occurs in situations where the probabilities of different options resulting in certain outcomes are known. In these cases, those who are more risk-averse will choose the option that results in a smaller payoff, because it has a greater probability of success than the option with potential for a larger payoff.
In situations where ambiguity is minimal, men, in general, display more ambiguity aversion than women. However, as the situation becomes more ambiguous, this gender difference starts to disappear and men and women begin to exhibit similar levels of aversion.4
Unlike risk aversion, which is linked to several different traits, such as IQ and higher levels of ambition, ambiguity aversion is not predicted by any psychological measures.5
While this demonstrates that risk aversion and ambiguity aversion are two distinct parameters, it does not provide an explanation for why ambiguity aversion occurs. The lack of correlates with ambiguity aversion significantly limits our understanding of the ambiguity effect.
Different people have different levels of ambiguity aversion. Those who are higher on this trait are more likely to display the ambiguity effect. Unfortunately, since we do not have a clear understanding of why some people exhibit more ambiguity aversion than others, we cannot provide a complete explanation as to why the ambiguity effect occurs.