A Two-Ball Ellsberg Paradox

Co-author: Simon Lazarus

Abstract
In an incentivized experiment on a nationally representative sample from the US (n = 708) we find that 55% of the subjects prefer to avoid ambiguity even when it means choosing dominated options.  This behavior cannot be reconciled with existing models of decision-making under ambiguity aversion in a straightforward manner. Our treatments demonstrate that this behavior is not mainly due to misunderstanding or misbeliefs about the experimental protocol. Furthermore, we establish that ambiguity aversion, whether it means choosing dominated options like in our new version or in the classical Ellsberg version, is likely to be a form of complexity aversion rather than a separate phenomenon.