Comparative Ignorance and the Ellsberg Paradox

  • Chow C
  • Sarin R
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Abstract

We investigate the evaluation of known (where probability is known) and unknown (where probability is unknown) bets in comparative and non-comparative contexts. A series of experiments support the finding that ambiguity avoidance persists in both comparative and non-comparative conditions. The price difference between known and unknown bets is, however, larger in a comparative evaluation than in separate evaluation. Our results are consistent with Fox and Tversky's (1995) Comparative Ignorance Hypothesis, but we find that the strong result obtained by Fox and Tversky is more fragile and the complete disappearance of ambiguity aversion in non-comparative condition may not be as robust as Fox and Tversky had supposed.

Author-supplied keywords

  • Ambiguity
  • Comparative ignorance
  • Ellsberg Paradox

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Authors

  • Clare Chua Chow

  • Rakesh K. Sarin

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