Ability, chance, and ambiguity aversion: Revisiting the competence hypothesis

Individuals are often ambiguity-averse when choosing among purely chance-based prospects (Ellsberg, 1961). However, they often prefer apparently ambiguous ABILITY-based prospects to unambiguous chance-based prospects. According to the competence hypothesis (Heath & Tversky, 1991), this pattern derives from favorable perceptions of one's competence. In most past tests of the competence hypothesis, ambiguity is confounded with personal controllability and the source of the ambiguity (e.g., chance vs. missing information). We unconfound these factors in three experiments and find strong evidence for independent effects of both ambiguity aversion and competence. In Experiment 1, participants preferred an unambiguous chance-based option to an ambiguous ability-based option when the ambiguity derived from chance rather than uncertainty about one's own ability. In Experiments 2 and 3, which used different operationalizations of ambiguity in choice contexts with actual consequences, participants attempted to avoid both ambiguity and chance insofar as they could. These findings support and extend the competence hypothesis by demonstrating ambiguity aversion independent of personal controllability and source of ambiguity.