CROWN, OCTOBER 2015Scholars have sliced and diced the terms “ambiguity,” “uncertainty,” and “ignorance,” among others, in a variety of different ways. Oftentimes, the usefulness of these sharp lines isn’t plainly apparent. But one dividing line between types of unknowns that has recently led researchers to fascinating new biological insights is the distinction between risk and ambiguity. According to decision theorists, risky choices are those where the specific outcome isn’t known while the odds of success are. Think of flipping a coin. You’re certain of the probability of its landing on heads or tails, but you can’t predict the outcome of any particular toss. Ambiguous choices are those whose odds of success are unknown because the rules determining the outcome are unclear.
This important distinction between ambiguity and risk is one that I explore in my book, Nonsense: The Power of Not Knowing.
Economic theorist Daniel Ellsberg’s famous thought experiment illustrates the contrast. Say you have to pick out a ball from one of two urns, both containing black and red balls. Each urn contains one hundred balls. Pull out a red ball, and you’ll win a hundred dollars. Pick a black one, and you’ll get zilch. But the two urns are different. Urn 1 holds anywhere from zero to one hundred red balls and from zero to one hundred black ones. Urn 2 has fifty black balls and fifty red balls. Ellsberg realized that if you ask people whether they’d prefer to bet on pulling from ...
