Uncertainties that are not risks: contextualizing the Ellsberg Paradox
The Ellsberg Paradox suggests that rational agents of the Bayesian kind do not ignore the weight of evidence, as postulated instead by Leonard Savage in his foundational study on decision-making and later taken for granted in mainstream decision theory. Daniel Ellsberg proposed an experimental setting to prove his argument, one which concentrates on choices related to urns containing coloured balls. Although it has been admitted that Ellsberg urns can represent not only risky but also ambiguous situations, it has been objected that uncertainties of a proper kind—such as the ones referred to by Keynes—cannot be represented through them. This paper examines Daniel Ellsberg’s rationale underlying the paradox and his use of the urns, by placing his contribution in the context of the crucial biographical episodes of the 1950s and early 1960s that originated his interest in the paradox. Both his motivations and assessments of the reactions to critics of his result are analysed. It is argued that Ellsberg’s choice to use urn examples in order to prove his claim cannot be taken as indication of his lack of interest for uncertainty proper. Indeed, the issue of uncertainty was the main thread of his commitment to decision-making as field of research.
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Keywords: uncertainty, risk, Ellsberg Paradox
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