Theorist(s): Daniel Ellsberg 🇺🇸
Publication: Quarterly Journal of Economics
The ambiguity effect is a cognitive bias where decision making is affected by a lack of information, or “ambiguity”. The effect implies that people tend to select options for which the probability of a favorable outcome is known, over an option for which the probability of a favorable outcome is unknown. One possible explanation of the effect is that people have a rule of thumb (heuristic) to avoid options where information is missing. This will often lead them to seek out the missing information. In many cases, though, the information cannot be obtained. The effect is often the result of calling some particular missing piece of information to the person’s attention.
Ellsberg, Daniel (1961). “Risk, Ambiguity, and the Savage Axioms”. Quarterly Journal of Economics. 75 (4): 643–669. doi:10.2307/1884324