Ellsberg Paradox A barrel contains a mixture of 90 red, blue, and yellow balls. Thirty of the balls are red, and the remaining 60 are a mixture of blue or yellow, but the proportion of blue and yellow is unknown. A sin-gle ball will be taken randomly from the barrel.
a. Suppose you are offered the choice between gambles A and B: A: Win $1,000 if a red ball is chosen. B: Win $1,000 if a blue ball is chosen. Would you prefer A or B? Why?
b. Now suppose that you are offered a choice between gambles C and D: C: Win $1,000 if either a red or a yellow ball is chosen. D: Win $1,000 if either a blue or a yellow ball is chosen. Would you prefer C or D? Why?
c. Many people prefer A in the first choice and D in the second. Do you think this is inconsistent? Explain.