The Ellsberg Paradox illustrates ambiguity aversion.

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The Ellsberg Paradox is a classic example of ambiguity aversion, which involves a tendency to prefer known risks over unknown risks. The paradox involves a choice between two urns, one of which is known to contain 50 red balls and 50 black balls, while the other has an unknown mix of red and black balls. Many people will choose the first urn, despite the fact that the second urn has an equal chance of winning or losing, simply because the risk is known. This illustrates aversion to ambiguity, or uncertainty about the probabilities involved in a decision.

The Ellsberg Paradox Illustrates Ambiguity Aversion