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

Phoebe Koundouri, Nikitas Pittis (), Panagiotis Samartzis and Konstantinos Georgalos
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Nikitas Pittis: University of Piraeus, Greece

No 2572, DEOS Working Papers from Athens University of Economics and Business

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.

Keywords: counterfactual priors; ambiguity; Ellsberg paradox (search for similar items in EconPapers)
JEL-codes: C44 D81 D83 D89 (search for similar items in EconPapers)
Date: 2025-12-14
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