Question

Ambiguity aversion is a preference for known risks over unknown risks. An ambiguity-averse individual would rather choose an alternative where the probability distribution of the outcomes is known over one where the probabilities are unknown.

Answer 1

Ambiguity aversion is a concept related to decision-making under uncertainty, where individuals prefer known risks over unknown risks, and it falls under the field of economics.

Step-by-step explanation:

Ambiguity aversion is a concept related to decision-making under uncertainty, which falls under the field of economics. It refers to the preference for known risks over unknown risks. In other words, an ambiguity-averse individual would rather choose an alternative where the probability distribution of the outcomes is known over one where the probabilities are unknown.

For example, let's say you have two investment options. Option A has a 70% chance of earning a 5% return, and a 30% chance of earning a 10% return. Option B has a 50% chance of earning a 7% return, and a 50% chance of earning a 9% return. An ambiguity-averse individual would be more likely to choose Option A because the probabilities are known.