People prefer known risks over unknown risks, even with equivalent expected values.
Ellsberg's 1961 urns: people prefer a bet on a 50-50 urn to a bet on an urn with unknown composition, even after being offered the choice of colour. Uncertainty about the odds is treated as worse than bad odds.
In practice
- A board approves a project with a 60% modelled success rate over one with an unmodelled but plausibly better chance, because the number feels safer.
- A hiring panel prefers a candidate with a mediocre but legible track record to one whose record they cannot interpret.
- Standing
- Compare the Allais paradox, which breaks the same theory through certainty rather than ambiguity.
- Further reading
- Wikipedia
- Subject
- Decision-making & Reasoning
- Essay
- Paradoxes that broke theories, and sayings that outlived them