Ambiguity effect
Encyclopedia
The 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 select options for which the probability
of a favorable outcome is known, over an option for which the probability of a favorable outcome is unknown. The effect was first described by Daniel Ellsberg
in 1961.
As an example, consider a bucket containing 30 balls. The balls are colored red, black and white. Ten of the balls are red, and the remaining 20 are some combination of black and white, with all combinations of black and white being equally likely. In option X, drawing a red ball wins a person $100, and in option Y, drawing a black ball wins them $100. The probability of picking a winning ball is the same for both options X and Y. In option X, the probability of selecting a winning ball is 1 in 3 (10 red balls out of 30 total balls). In option Y, despite the fact that the number of black balls is uncertain, the probability of selecting a winning ball is also 1 in 3. This is because the number of black balls is equally distributed among all possibilities between 0 and 20, so the probability of there being (10 - n) black balls is the same as there being (10 + n) black balls. The difference between the two options is that in option X, the probability of a favorable outcome is known, but in option Y, the probability of a favorable outcome is unknown ("ambiguous").
In spite of the equal probability of a favorable outcome, people have a greater tendency to select a ball under option X, where the probability of selecting a winning ball is perceived to be more certain. The uncertainty as to the number of black balls means that option Y tends to be viewed less favorably. Despite the fact that there could possibly be twice as many black balls as red balls, people tend not to want to take the opposing risk that there may be fewer than 10 black balls. The "ambiguity" behind option Y means that people tend to favor option X, even when the probability is equivalent.
One possible explanation of the effect is that people have a rule of thumb (heuristic) to avoid options where information is missing (Frisch & Baron, 1988; Ritov & Baron, 1990). This will often lead them to seek out the missing information. In many cases, though, the information cannot be obtained. The effect is often the result of calling some particular missing piece of information to the person's attention.
However, not all people act this way. In Wilkinson's Modes of Leadership
, what he describes as Mode Four individuals do not require such disambiguation and actively look for ambiguity
especially in business and other such situations where an advantage might be found. This response appears to be linked to an individuals understanding of complexity
and the search for emergent properties.
Cognitive bias
A cognitive bias is a pattern of deviation in judgment that occurs in particular situations. Implicit in the concept of a "pattern of deviation" is a standard of comparison; this may be the judgment of people outside those particular situations, or may be a set of independently verifiable...
where decision making
Decision making
Decision making can be regarded as the mental processes resulting in the selection of a course of action among several alternative scenarios. Every decision making process produces a final choice. The output can be an action or an opinion of choice.- Overview :Human performance in decision terms...
is affected by a lack of information, or "ambiguity". The effect implies that people tend to select options for which the probability
Probability
Probability is ordinarily used to describe an attitude of mind towards some proposition of whose truth we arenot certain. The proposition of interest is usually of the form "Will a specific event occur?" The attitude of mind is of the form "How certain are we that the event will occur?" The...
of a favorable outcome is known, over an option for which the probability of a favorable outcome is unknown. The effect was first described by Daniel Ellsberg
Daniel Ellsberg
Daniel Ellsberg, PhD, is a former United States military analyst who, while employed by the RAND Corporation, precipitated a national political controversy in 1971 when he released the Pentagon Papers, a top-secret Pentagon study of U.S. government decision-making in relation to the Vietnam War,...
in 1961.
As an example, consider a bucket containing 30 balls. The balls are colored red, black and white. Ten of the balls are red, and the remaining 20 are some combination of black and white, with all combinations of black and white being equally likely. In option X, drawing a red ball wins a person $100, and in option Y, drawing a black ball wins them $100. The probability of picking a winning ball is the same for both options X and Y. In option X, the probability of selecting a winning ball is 1 in 3 (10 red balls out of 30 total balls). In option Y, despite the fact that the number of black balls is uncertain, the probability of selecting a winning ball is also 1 in 3. This is because the number of black balls is equally distributed among all possibilities between 0 and 20, so the probability of there being (10 - n) black balls is the same as there being (10 + n) black balls. The difference between the two options is that in option X, the probability of a favorable outcome is known, but in option Y, the probability of a favorable outcome is unknown ("ambiguous").
In spite of the equal probability of a favorable outcome, people have a greater tendency to select a ball under option X, where the probability of selecting a winning ball is perceived to be more certain. The uncertainty as to the number of black balls means that option Y tends to be viewed less favorably. Despite the fact that there could possibly be twice as many black balls as red balls, people tend not to want to take the opposing risk that there may be fewer than 10 black balls. The "ambiguity" behind option Y means that people tend to favor option X, even when the probability is equivalent.
One possible explanation of the effect is that people have a rule of thumb (heuristic) to avoid options where information is missing (Frisch & Baron, 1988; Ritov & Baron, 1990). This will often lead them to seek out the missing information. In many cases, though, the information cannot be obtained. The effect is often the result of calling some particular missing piece of information to the person's attention.
However, not all people act this way. In Wilkinson's Modes of Leadership
Modes of Leadership
David Wilkinson described four modes of leadership in his 2006 book, The Ambiguity Advantage.-Mode vs style:In situational leadership theory, styles of leadership refer to behaviors that a leader should engage with in different situations...
, what he describes as Mode Four individuals do not require such disambiguation and actively look for ambiguity
Ambiguity
Ambiguity of words or phrases is the ability to express more than one interpretation. It is distinct from vagueness, which is a statement about the lack of precision contained or available in the information.Context may play a role in resolving ambiguity...
especially in business and other such situations where an advantage might be found. This response appears to be linked to an individuals understanding of complexity
Complexity
In general usage, complexity tends to be used to characterize something with many parts in intricate arrangement. The study of these complex linkages is the main goal of complex systems theory. In science there are at this time a number of approaches to characterizing complexity, many of which are...
and the search for emergent properties.
See also
- Choice under uncertainty
- Prospect theoryProspect theoryProspect theory is a theory that describes decisions between alternatives that involve risk i.e. where the probabilities of outcomes are known. The model is descriptive: it tries to model real-life choices, rather than optimal decisions.-Model:...
- Risk aversionRisk aversionRisk aversion is a concept in psychology, economics, and finance, based on the behavior of humans while exposed to uncertainty....