The Ellsberg ‘Problem’ and Implicit Assumptions under Ambiguity


Empirical research has revealed that people try to avoid ambiguity in the Ellsberg problem and make choices inconsistent with the predictions of Expected Utility Theory. We hypothesized that people might be forming implicit assumptions to deal with the ambiguity resulting from the incomplete information in the problem, and that some assumptions might lead them to deviate from normative predictions. We embedded the Ellsberg problem in various scenarios that made one source of ambiguity (i.e., the implied distribution of the unknown number of the colored balls) explicit. Results of an experiment showed that more people chose consistently (and hence rationally) when the scenario encouraged them to think that the probability distribution of the number of balls was normal. The results give insight into the implicit assumptions that might lead to choices congruent with normative models.

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