Ellsberg and Allais paradoxes have one thing in common – both reflect our ambiguity aversion. Given the opportunity to choose between a ‘sure thing’ and an uncertain one, people tend to pick the former. Or it is the behaviour characteristics that dictate your decision-making when the probability of the outcome is known vs it is unknown; a feeling that tells you an uncertain outcome is a negative outcome.
In the case of the Ellsberg paradox, people are happy to bet on the red ball when they know the risk (33% chance) against the ambiguity surrounding the black and yellow. The same people had no issue dumping the mathematically identical option (red) when they knew there was a 60% chance of getting 100 if they went for one of the others.
In the case of the Allais, it was a fear imposed by a 1% chance of getting nothing. If you want to know that fear, let’s take the case of a vaccine that can give a 10% chance of 5-year protection, 89% chance of 1-year protection and a 1% chance of no protection, or worse, a 1 in a million probability of death! If that was placed side by side with another one that guarantees 1-year protection to all, without any known side effects, guess what I would go for.
