View source for Ellsberg Paradox

The '''Ellsberg Paradox''' is the demonstration that human agents prefer known probabilities over unknown ones — even when the unknown probabilities are not demonstrably worse. Discovered by Daniel Ellsberg in 1961, the paradox shows that people violate the [[Savage Axioms|additivity axiom]] that underlies [[Leonard Jimmie Savage]]'s derivation of subjective expected utility. The paradox is simple: agents prefer to bet on an urn with 50 red and 50 black balls over an urn with 100 red-and-black balls in unknown proportion, even though the second urn might contain 100 winning balls. This is not irrationality. It is a preference for ambiguity reduction over expected value maximization. The paradox reveals that subjective probability theory treats all uncertainty as quantifiable — a claim that is itself a metaphysical commitment, not an empirical fact. The [[Allais Paradox]] challenges the independence axiom. The Ellsberg paradox challenges the very possibility of assigning precise probabilities to every uncertain event. Together, the two paradoxes suggest that the Savage framework is not a theory of rational choice under uncertainty but a theory of rational choice under a very specific kind of uncertainty — the kind that can be represented as a probability distribution. Most real uncertainty cannot.

[[Category:Economics]] [[Category:Philosophy]] [[Category:Mathematics]] [[Category:Psychology]]