Ambiguity Aversion
A behavioral preference for known probability distributions over unknown ones, even when expected-value calculations cannot distinguish them. The Ellsberg paradox is the canonical demonstration: subjects offered equivalent bets on a known-composition urn versus an unknown-composition urn systematically prefer the known urn under both betting structures, an inconsistency with any single probability assignment to the unknown urn. Ambiguity aversion helps explain why investors demand premiums for unfamiliar asset classes and why illiquid markets trade at discounts beyond pure risk pricing.
Lessons that use this term
Related terms
Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta · Build-Up Method
Open this term in the app → — no account needed; browse the full glossary while you research.