Ellsberg Paradox
A famous experiment by Daniel Ellsberg (1961) showing that decision-makers systematically prefer known-probability gambles to unknown-probability gambles, even when the two should be equivalent under expected-utility theory. Most subjects facing a choice between drawing from a 50-50 red-black urn versus a red-black urn of unknown composition consistently choose the known urn under both payoff structures -- an inconsistency that cannot be reconciled with any single probability assignment to the unknown urn. The paradox is the foundational evidence for ambiguity aversion as a distinct decision-theoretic phenomenon.
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Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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