| Authors |
Koundouri, P., Pittis, N., Samartzis, P. and Georgalos, K. |
| Title |
Comparative Ignorance as an Explanation of Ambiguity Aversion and Ellsberg Choices: A Survey with a New Proposal for Bayesian Training |
| 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. |
| Creation Date |
2025-12-14 |
| Keywords |
counterfactual priors, ambiguity, Ellsberg paradox |
| Classification JEL |
C44, D81, D83, D89 |
| File |
2025.Counter.Factual.pdf (1600898 bytes) |
| File-Function |
First version |
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Copyright © 2009 [D.I.E.S.S. A.U.E.B.]. All rights reserved.
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