Have you ever jumped into an investment or money decision even though you didn't know all the details?
Most people hate uncertainty when it comes to money, or at least we think we do. Conventional wisdom (and economic theory) suggests people prefer safe bets or at least risks they can quantify.
But new research suggests something surprising: given certain conditions, many people prefer a gamble when some outcomes are unknown. In other words, we might be more optimistic about ambiguous, uncertain opportunities than we are about clear-cut risks.
This counterintuitive finding has big implications for how we manage our finances when the future is anything but certain.
A recent academic study put this to the test with real people in a controlled experiment. The study, published in 2025 in the Journal of Risk and Uncertainty, looked at how individuals make investment-like decisions under different types of uncertainty: known risks, compound risks, and ambiguity (unknown outcomes).
The goal was to see if less information (more ambiguity) would make people more cautious or more optimistic.
The results turned out to challenge the classic “ambiguity aversion” idea – at least in the context of this experiment. Below, I break down what the researchers found in plain language, and then we’ll discuss what it means for your wallet.
The Study in a Nutshell
Imagine you're offered a gamble, like a lottery ticket, with a chance to win some money.
Sometimes you know exactly what you could win and the odds of winning. Other times, you only know the odds or only a rough range of the prize, but not the precise outcome.
Which scenario would make you more eager to play? The researchers designed a lab experiment around questions like that:
In one scenario (Risk), participants knew all the prize amounts and probabilities upfront (nothing ambiguous there, just standard risk).
In another (Compound Risk), participants knew the prize amounts came from a uniform random draw (so they knew the distribution of possible prizes, but not the exact values drawn each round).
In the most uncertain scenario (Ambiguity), participants were only told that prizes fell between a lower and upper bound – the exact prize values and distribution were hidden, creating true ambiguity.
Everyone made a series of choices between lotteries in these conditions and stated their certainty equivalents (the sure amount they felt was equal to the risky option). This let the researchers measure how much each person valued the gamble under different information conditions.
What did they find? People’s behavior was not what many might expect:
Ambiguity made people more optimistic: On average, participants assigned a higher value to lotteries when some prize values were hidden. People’s valuation of the lottery jumped 16% when outcomes were ambiguous. In short, less information led to more willingness to bet – the opposite of what classical theory might predict. The authors dub this behavior being “ambiguity-loving,” at least in terms of optimistic evaluation of unknown outcomes.
Known risk still scared them: Don’t get it wrong – people were still generally risk-averse overall (they didn’t value any gamble at its full expected value). But the interesting part is they were less risk-averse (more willing to gamble) when some payoff details were missing. Essentially, ignorance bred optimism.
Half of people used a “naïve” strategy: The experiment also looked at how people were making these calls. Roughly 50% of choices followed the fully “rational” expected utility calculation, but the other half looked like people using a heuristic. The researchers call this the “naïve” approach: those folks seemed to first imagine a single likely outcome for the unknown prize, then base their decision on that guess. This is huge – it means a lot of us simplify ambiguous problems by essentially making up a number in our heads to stand in for the uncertainty.
Risk-averse people = ambiguity-averse people (mostly): Even though on average the group was ambiguity-seeking, individuals differed. The data showed that those who were more risk-averse (more cautious with known risks) also tended to be more pessimistic about ambiguous gambles. In contrast, the real daredevils who don’t mind risk were also more likely to dive into the unknown with optimistic assumptions. So your general attitude toward risk likely carries over to how you handle fuzzy unknowns.
Who were the cautious ones? Consistent with prior research, they found some demographic patterns: women in the study were more risk-averse on average than men, and people who scored higher on cognitive reflection (basically more analytical thinkers) were also more risk-averse. That doesn’t mean every woman or every brainiac was cautious, just a noticeable overall trend. It’s a reminder that our financial personality can be shaped by both our traits and how we think.
What It Means for Your Wallet
Uncertainty is a fact of nearly all areas of life and especially with money. Whether it’s an investment with volatile returns, a new job prospect, or an economic climate that feels shaky. This study gives us a peek into the psychology of those situations. Here are a few takeaways to consider for your own financial decisions:
Don’t let missing information turn into wishful thinking: The research shows we tend to fill information gaps with optimism. For example, if you’re considering investing in a risky investment and you don’t fully understand the payoff possibilities, you might subconsciously assume the best-case scenario. Be mindful: before you bet on an uncertain opportunity, do your homework. Try to pin down the range of outcomes. If something is too vague, remind yourself that your brain might be painting it rosier than reality.
Know your risk personality: Are you generally cautious, or do you chase thrills? According to the study, that baseline will also color how you deal with ambiguity. If you know you’re risk-averse, recognize that unfamiliar, unclear investments will probably make you uneasy – and that’s okay. It’s wise to demand extra compensation (or just avoid) for taking on uncertainty. On the flip side, if you’re a risk-taker, be careful not to charge into every opaque deal thinking “it’ll work out.” Your comfort with uncertainty could lead to overconfidence.
Use “what if” scenarios to counter the naïve heuristic: About half the participants basically guessed an outcome and went with it. In real life, this would be like saying “I’ll probably get a 10% return, sounds good” without considering the alternatives. To combat this, always ask yourself: What’s the worst-case? The best-case? How likely are each? Forcing yourself to consider multiple scenarios can prevent your mind from latching onto a single, possibly unrealistic, point estimate.
Emergency funds and buffers shine in uncertainty: If ambiguous or volatile situations make us either overly optimistic or overly scared, the best antidote is solid preparation. An emergency fund or a diversified portfolio can give you confidence and discipline. You won’t need to rely on hope alone, and you’ll be less tempted to make a panicked move if things go south. Essentially, preparation turns unknown risks into known risks that you can manage.
Finally, remember that uncertainty in finance is inevitable. None of us has a crystal ball, but we do have research like this to clue us in on our own biases. The next time you face a murky decision – say, whether to invest in a friend’s mysterious new venture, or how to allocate your 401(k) during crazy market swings – take a pause.
A little healthy skepticism and information-gathering can go a long way.
By understanding that we’re prone to being "ambiguity lovers" in the right (or wrong) conditions, you can adjust your approach and make more grounded, confident choices with your money.
In uncertain times, your best tools are knowledge, self-awareness, and a solid plan, not blind optimism.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.