Ambiguity and the variance of gambles

C-Tier
Journal: Economics Letters
Year: 2025
Volume: 256
Issue: C

Score contribution per author:

1.005 = (α=2.01 / 1 authors) × 0.5x C-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

Ellsberg’s paradox shows that people prefer gambles with known probabilities to those where they are uncertain. Standard explanations rule out risk aversion by appealing to Savage’s (1954) subjective expected utility theory but this axiomatic approach leaves open other interpretations of the evidence. We provide a simpler argument: a routine application of the law of total variance shows that the variance of the payoff from a binary gamble is determined entirely by the mean probability belief, not by uncertainty about those beliefs. Ellsberg-type choices are not consistent with rational mean–variance evaluations of risk.

Technical Details

RePEc Handle
repec:eee:ecolet:v:256:y:2025:i:c:s0165176525004823
Journal Field
General
Author Count
1
Added to Database
2026-01-29