Navigating Ambiguity: The Ellsberg Paradox

This chapter examines ambiguity aversion and its impact on decision-making, particularly through the Ellsberg paradox. It highlights how individuals confront uncertainty by formulating internal beliefs about probabilities and how these beliefs may reflect a rational approach even in seemingly contradictory scenarios. The discussion also emphasizes the balance between emotional biases and rationality, exploring the cognitive benefits and limitations of ambiguity aversion in contemporary contexts.