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From Wikipedia: "Risk aversion comes from a situation where a probability can be assigned to each possible outcome of a situation and it is defined by the preference between a risky alternative and its expected value." "Ambiguity aversion ... is defined through the preference between risky and ambiguous alternatives, after controlling for preferences over risk."

What is the preference between an ambiguous alternative and a certain outcome referred to? For example, the choice between a certain reward and an unknown probability to win a larger reward. I think it is not risk aversion, because an alternative's probability distribution of the outcomes is unknown, and not risk ambiguity because one alternative does not entail a risk.

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  • $\begingroup$ A sure outcome is just a special case of a risky alternative with a degenerate probability distribution. $\endgroup$ – Herr K. Sep 8 '20 at 5:11
  • $\begingroup$ Herr K., this would make the preference of the sure outcome over the unknown risk a case of ambiguity aversion? $\endgroup$ – Nir Sep 8 '20 at 5:40
  • $\begingroup$ Under a set of appropriate conditions, yes, the choice of a sure outcome over an ambiguous alternative can be attributed ambiguity aversion. Since different authors define ambiguity aversion somewhat differently, the "appropriate conditions" also differ. On the other hand, choosing a sure \$100 over an uncertain distribution over \$1 and \$2 can hardly be called ambiguity averse. $\endgroup$ – Herr K. Sep 8 '20 at 6:22
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    $\begingroup$ Herr K. thank you very much, this is the right answer for me. If you write it I'll mark it. $\endgroup$ – Nir Sep 8 '20 at 7:50
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A sure outcome is just a special case of a risky alternative with a degenerate probability distribution.

Under a set of appropriate conditions, the choice of a sure outcome over an ambiguous alternative can be attributed ambiguity aversion. But since different authors define ambiguity aversion somewhat differently, the "appropriate conditions" also differ. On the other hand, choosing a sure \$100 over an uncertain distribution over \$1 and \$2 can hardly be called ambiguity averse.

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