Beware the ambiguity effect

We prefer outcomes with known probabilities over unknown probabilities.

Most famous example is the Ellsberg’s Paradox:

  1. There are two buckets, and each one has 100 black balls and red balls
  2. You know that the first bucket has 50 red balls and 50 white balls
  3. You don’t know the ratio of black to red balls in the second bucket

Someone asks you to place a bet on a ball color and choose your bucket. You decide to bet $40 that you will pull out a red ball. Which bucket do you select?

Most people choose the first bucket.

People choose products from brands they know even if the unknown one might be better for the situation.

This is also why becoming an ‘uncertainty killer’ can be so effective at work.

Information is the resolution of uncertainty. – Claude Shannon

References:

  • https://nesslabs.com/ambiguity-effect
  • https://ofdollarsanddata.com/become-an-uncertainty-killer/

Notes mentioning this note

Decisions matter
[[How to Measure Anything]]
Decisions matter
[[How to Measure Anything]]

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