Ambiguity Aversion

Ambiguity aversion is a behavioral finance term that refers to the fact that people tend to prefer risk (a gamble with known probabilities) to uncertainty (a gamble with unknown or ambiguous probabilities). Ambiguity aversion can have an impact on financial decision making. For example, most people do not have a good grasp of the the odds of living a very long life. This can have an impact on the likelihood of hedging longevity risk through the purchase of an annuity.