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Decision-Making
Is It Time to Step Outside Your Comfort Zone?
An irrational avoidance of uncertainty may be holding you back.
Posted August 23, 2019
“Our love wasn't perfect, I know … I'll forgive and forget if you say you'll never go, 'cause it's true what they say: It's better the devil you know.”
In her famous 1990 hit single “Better the devil you know,” Queen of Pop Kylie Minogue ponders experiences from a past relationship. Acknowledging previous romantic challenges, she promises to forgive her partner and expresses the wish to start over.
This is because the proverbial “devil you know” seems preferable to an unknown future partner with potentially even worse qualities. In only a few simple lines, Kylie’s song lyrics manage to capture an important phenomenon of human decision making: An irrationally strong dislike and avoidance of uncertainty, which may prevent us from stepping outside our comfort zone.
Uncertainty aversion
The concept of uncertainty aversion (also referred to as ambiguity aversion) describes a human preference of known risks over unknown risks—whenever this is possible. This preference was first demonstrated by Daniel Ellsberg in 1961 using the following task:
Imagine you have the chance of participating in one out of two betting options. Both bets involve an opaque urn filled with coloured balls, from which one ball is drawn at random to determine the outcome of the bet. Before each new draw, one colour is chosen randomly as the winning colour and if the ball matches this colour, you receive a prize.
Now here is the interesting part: In the first bet, the urn contains exactly 50 red and 50 black balls. In the second bet, the urn contains 100 balls in red and black, but the relative frequency of each colour is unknown.
Which bet would you choose?
If you chose Bet 1, you are in good company, because experiments have found that approximately 70% of people will go for the same option. One reason typically named for choosing Bet 1 is that the probability of winning is known. On average, the drawn ball will match the winning colour one time out of two, thus leaving you with a 50% chance of receiving the prize. In contrast, no information is available about the probabilities of Bet 2. Picking the first bet is, therefore, an indicator of uncertainty aversion, because it involves choosing a situation with a known risk over a situation with unknown risk.
What is rational?
In the example above, it may seem intuitively obvious to choose the bet with more information. However, a completely rational decision-maker should be indifferent between the two betting options, and this is why:
Say you choose Bet 1. This choice is informative because it implies that you judge the probability of drawing a winning ball from the first urn as higher than from the second urn.
Let’s now assume the winning colour is determined to be red. According to your previous judgment, drawing a red ball from the first urn is more likely than drawing a red ball from the second urn. Since the probabilities of the first urn are fully known (both colours are equally likely with a probability of 50% each), it logically follows that the probability of drawing a red ball from the second urn must be lower than 50%. Since the probabilities of drawing either colour from each urn have to add up to 100%, it further follows that the likelihood of drawing a black ball from the second urn will be higher than 50%.
Now hold that thought and consider this alternative scenario.
Let’s (again) assume you picked Bet 1, but this time the winning colour is determined to be black. Your decision to pick Bet 1 implies (again), that you believe it more likely to draw the winning colour from the first urn compared to the second urn. Since the probability of drawing black from the first urn is fully known (50%), it logically follows that the probability of drawing a black ball from the second urn must be lower than 50%. Since the probabilities of drawing either colour from each urn have to add up to 100%, it further follows that the likelihood of drawing a red ball from the second urn will be higher than 50%.
Do you spot the glaring inconsistency? The underlying assumptions for choosing Bet 1 over Bet 2 fail to add up, thus exposing an error in reasoning. In other words, there is no rational reason for preferring Bet 1 over Bet 2.
So what?
Given the experimental evidence and the insights gained from our thought experiment, it appears that many human decision-makers are averse to uncertain options even when there is no rational reason to do so. This aversion may manifest itself through the avoidance of new and unknown situations or by unwarranted feelings of stress experienced when involuntarily faced with such uncertainty. Both of these consequences can have serious implications for everyday life.
A particularly important area affected by uncertainty aversion is health-related decision making. Many patients are unnecessarily reluctant to try lesser-known treatment options, and some may avoid vaccinating their children in cases of uncertainty about personal risk factors. Equally, many doctors struggle with ambiguous patient cases, are reluctant to convey uncertain diagnoses to patients, and try to compensate for the uncertainty by overprescribing medication. Finally, even providers of (medical) insurance aren’t immune to the decision bias: A study of professional actuaries showed that insurance coverage of risks with unknown probabilities was priced significantly higher than insurance for risks with known probabilities.
So what conclusions should we draw from this evidence? If you are particularly sensitive to uncertain situations, it might be time to step outside your comfort zone. Research suggests that increased experience is a way to learn about unknown probabilities and develop more neutral attitudes towards uncertainty. Maybe Kylie would have done better looking for a new romantic partner rather than trying to revive the old relationship?
If you’re up for trying something new, this yoga class for risk-takers could be a helpful first step. And even if it doesn't help with uncertainty aversion, it will certainly (!) be fun.
