What is the Ambiguity Effect?
Ambiguity Effect occurs when people prefer options with known probabilities over those with unknown probabilities. This tendency exists even if both options have the same expected value.
Why we prefer options that are known to us
The
Ambiguity Effect
, explained. Bias
Description
There is no definitive explanation for this bias. One possibility is that when descriptions neglect to include information, it is because that information is counter to one’s goals. It is then easy to conflate missing information with negative information. Risk aversion also contributes to this bias. Because of ambiguity bias, when trying to influence someone to buy a product, vote for someone, or make almost any decision, it is advantageous to (at least appear to) show as much clarity as possible.
Example
In a study by Heath and Tversky, subjects were asked to pick a green or red ball from a container and then guess its color. If they guess correctly, they won money. One container had 50 red balls and 50 green balls, while the other had a random proportion of both balls. While it was equally likely to pick either color of ball from either container, most subjects chose the container with 50 balls of each color, the option with known probability.
Further Reading
https://www.wiwi.europa-uni.de/de/lehrstuhl/fine/mikro/bilder_und_pdf-dateien/WS0910/VLBehEconomics/Ausarbeitungen/AmbiguityEffect.pdf
