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Comparative Ignorance as an Explanation of Ambiguity Aversion and Ellsberg Choices: A Survey with a New Proposal for Bayesian Training

Author

Listed:
  • Phoebe Koundouri
  • Nikitas Pittis

    (University of Piraeus, Greece)

  • Panagiotis Samartzis
  • Konstantinos Georgalos

Abstract

Ellsberg-type choices challenge the Bayesian theory of Subjective Expected Utility Maximization (SEUM) and reveal a key behavioural trait: Ambiguity Aversion (AA). Two main interpretations of AA exist. One treats AA as rational; the other sees it as a psychological bias. This paper adopts the latter view and focuses on the leading psychological account of AA, Fox and Tversky's (1995) Comparative Ignorance Hypothesis (CIH). CIH argues that AA arises as a "comparative effect" when a decision maker (DM) feels epistemically inferior for some events relative to others. In such cases, the DM becomes averse to betting on the epistemically weaker events. The paper has three goals. First, it surveys the literature on CIH. Second, it introduces a new "Bayesian Training" (BT) procedure grounded in counter factual thinking. A DM who engages in BT may escape comparative ignorance, reduce AA, and align more closely with Bayesian behaviour. Finally, we present the results of an economic experiment where we aim to test the impact of Bayesian training on behaviour.

Suggested Citation

  • Phoebe Koundouri & Nikitas Pittis & Panagiotis Samartzis & Konstantinos Georgalos, 2025. "Comparative Ignorance as an Explanation of Ambiguity Aversion and Ellsberg Choices: A Survey with a New Proposal for Bayesian Training," DEOS Working Papers 2572, Athens University of Economics and Business.
    • Handle: RePEc:aue:wpaper:2572
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    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other

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