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"The Jambhavan Diaries"

Beware of Ambiguity Effect

Ambiguity effect was proposed by Daniel Ellsberg in 1961.

Ambiguity effect is a cognitive bias where decision making is affected by a lack of information or ambiguity. The effect implies that people tend to choose options for which the favourable outcome is known over an option for which a favourable outcome is unknown. 

Ambiguity effect has a lot of applications in the area of decision making. For instance, you have come to a new town (say Coimbatore) and wanted to know good hotels nearby to have your breakfast. I give you two options: Hotel A and Hotel B.

Hotel A: The food is delicious. Service is excellent. If you dislike the food, there is a possibility for refund or changing the item.

Hotel B: I am not sure. I don't know about the quality of food in Hotel B.

Psychologically speaking, your preference towards Hotel A will increase over Hotel B. This is known as "Ambiguity Effect." People tend to choose outcomes that are positive, certain, and known over something that is unknown, even when the probabilities are the same.

Source: http://www.wordstream.com/images/landing-pages-ambiguity-effect.jpg., accessed on May 12, 2015.

Avoiding the trap of Ambiguity effect:

  1. Research more information.
  2. Consult an expert.
  3. Estimate the probabilities of  all the items.

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