Overcoming Ambiguity Aversion Through Experience

Ambiguity is often characterized with unknown probability distributions (for potential outcomes), which people avoid while making decisions. Existing literature shows that ambiguity aversion often persists even when these probability distributions are explicitly described to decision makers. We test the hypothesis that exposure to these probability distributions via sampling experience, rather than description, will lead to a reduction in ambiguity aversion. We used the classic two-colour Ellsberg task in which the participants were asked to choose to bet on either a risky bet (i.e. probabilities were known) or (versions of) an ambiguous bet (i.e. exact probabilities were unknown). Different probability distributions, each providing subtly different information about the underlying properties of the ambiguous bet, were either experienced through sampling or described to participants prior to choice. Overall, the results indicated that people demonstrated ambiguity-neutral attitudes when the underlying probability distributions were experienced. In contrast, when described, attitudes toward ambiguity changed as a function of the type of probability distribution. Additional analyses confirmed that decision makers were less likely to be ambiguity-averse when their individual experiences were positive during sampling trials (i.e. observing distributions with winning being more likely or more frequent). Copyright (c) 2014 John Wiley & Sons, Ltd.