How to Deal With Uncertainty

Imagine two silk bags, each with a mix of 100 red and black balls. In the first bag, there are 50 red and 50 black. In the second, you’re not sure about the mix. If you draw a red ball from either one, you get $100. Which bag do you reach into? If you’re like most people, you’ll reach into the bag with the known quantities of red and black balls. If you know someone is watching you make the choice, you are even more likely to pick from bag number one. Our tendency to favor known risk over unknown risk is called ambiguity aversion. The concept was popularized by Daniel Ellsberg (the same guy who leaked the Pentagon Papers) in 1961. Ellsberg found that people prefer choices with calculable risk, even in instances where the unknown alternative might produce a better result. In practice, ambiguity aversion discourages people from doing things like participating in the stock market or trying new medical treatments when risks are less known. This may seem rational—better to play with the dev

Skip to content We use analytics and advertising tools by default. You can update this anytime. Privacy Preferences Do Not Sell or Share Privacy Preferences x Manage optional tracking categories. Necessary cookies stay on so the site can function. Analytics Advertising and sharing Cancel Save Preferences How to Deal With Uncertainty Via Lucas Crespo. By Simone Stolzoff Simone Stolzoff is a writer, author, and designer from San Francisco. You can learn more about him and get a copy of his new book at simonestolzoff.com. You can also join his free newsletter: ArticleBookClub.Substack.com. How to

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