UNCERTAINTY AND AMBIGUITY AS THE SETTINGS OF ECONOMIC DECISIONS

Abstract

Typically, three kinds of settings, under which decisions are made, are distinguished, certainty, uncertainty, and risk. In this view, uncertainty is defi ned narrowly, as a situation, in which the probability distribution is unknown. However, D. Ellsberg’s studies showed that ambiguity, defi ned as an intermediate condition between uncertainty and risk, could be considered as the fourth type of decision settings. Seen from this perspective, uncertainty is a more complex notion and it is commonly experienced with regard to important issues other than only total or partial lack of knowledge of probability. Following the review of concepts of uncertainty, we present examples of their impact on everyday life economic decisions that are made in the domains of consumer behaviour, saving, investment, and entrepreneurship. Finally, we present some methods of coping with different kinds of uncertainty.