Ambiguity aversion occurs when individuals show a preference for gambles in which the outcome and the probabilities are known over those gambles for which they are unknown.

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Ambiguity aversion refers to the tendency of individuals to favor decisions where the probability of outcomes is known over decisions where the probabilities are uncertain or ambiguous, even if the expected returns are potentially higher in the ambiguous situations.

Ambiguity Aversion Occurs When Individuals Show a Preference for Gambles