1. The Sure-Thing Principle and the Ellsberg Paradox
Diederik Aerts2015
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Abstract
The Allais and Ellsberg paradoxes show that the expected utility hypothesis and Savage’s Sure-Thing Principle are violated in real life decisions. The popular explanation in terms of ambiguity aversion is not completely accepted. On the other hand, we have recently introduced a notion of contextual risk to mathematically capture what is known as ambiguity in the economics literature. Situations in which contextual risk occurs cannot be modeled by Kolmogorovian classical probabilistic structures, but a non-Kolmogorovian framework with a quantum-like structure is needed. We prove in this paper that the contextual risk approach can be applied to the Ellsberg paradox, and elaborate a sphere model within our hidden measurement formalism which reveals that it is the overall conceptual landscape that is responsible of the disagreement between actual human decisions and the predictions of expected utility theory, which generates the paradox. This result points to the presence of a quantum c...
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The Allais and Ellsberg paradoxes show that the expected utility hypothesis and Savage's Sure-Thing Principle are violated in real life decisions. The popular explanation in terms of 'ambiguity aversion' is not completely accepted. On the other hand, we have recently introduced a notion of 'contextual risk' to mathematically capture what is known as 'ambiguity' in the economics literature. Situations in which contextual risk occurs cannot be modeled by Kolmogorovian classical probabilistic structures, but a non-Kolmogorovian framework with a quantum-like structure is needed. We prove in this paper that the contextual risk approach can be applied to the Ellsberg paradox, and elaborate a 'sphere model' within our 'hidden measurement formalism' which reveals that it is the overall conceptual landscape that is responsible of the disagreement between actual human decisions and the predictions of expected utility theory, which generates the para...
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Empirical evidence has confirmed that quantum effects occur frequently also outside the microscopic domain, while quantum structures satisfactorily model various situations in several areas of science, including biological, cognitive and social processes. In this paper, we elaborate a quantum mechanical model which faithfully describes the Ellsberg paradox in economics, showing that the mathematical formalism of quantum mechanics is capable to represent the ambiguity present in this kind of situations, because of the presence of contextuality. Then, we analyze the data collected in a concrete experiment we performed on the Ellsberg paradox and work out a complete representation of them in complex Hilbert space. We prove that the presence of quantum structure is genuine, that is, interference and superposition in a complex Hilbert space are really necessary to describe the conceptual situation presented by Ellsberg. Moreover, our approach sheds light on 'ambiguity laden' decision processes in economics and decision theory, and allows to deal with different Ellsberg-type generalizations, e.g., the Machina paradox.
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