Decision Making Under Ambiguity: A Note

In 1961, Daniel Ellsberg used the following choice problem to demonstrate that expressions of uncertainty are not totally captured by the concept of “probability.” Imagine two urns, each containing red and black balls. Although it is known that Urn 1 contains 100 balls, the proportions of red and black balls are unknown. Urn 2, on the other hand, contains 50 red and 50 black balls. Furthermore, imagine that you can win $100 by naming the appropriate color (red or black) of a ball to be drawn at random from Urn 1. Would you bet on red, black, or be indifferent between the two? What would your answer be if the drawing were to be made from Urn 2?