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A proposal to extend expected utility in a quantum probabilistic framework

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journal contribution
posted on 2017-08-14, 14:31 authored by Diederik Aerts, Emmanuel Haven, Sandro Sozzo
Expected utility theory (EUT) is widely used in economic theory. However, its subjective probability formulation, first elaborated by Savage, is linked to Ellsberg-like paradoxes and ambiguity aversion. This has led various scholars to work out non-Bayesian extensions of EUT which cope with its paradoxes and incorporate attitudes toward ambiguity. A variant of the Ellsberg paradox, recently proposed by Mark Machina and confirmed experimentally, challenges existing non-Bayesian models of decision-making under uncertainty. Relying on a decade of research which has successfully applied the formalism of quantum theory to model cognitive entities and fallacies of human reasoning, we put forward a non-Bayesian extension of EUT in which subjective probabilities are represented by quantum probabilities, while the preference relation between acts depends on the state of the situation that is the object of the decision. We show that the benefits of using the quantum theoretical framework enable the modeling of the Ellsberg and Machina paradoxes, as the representation of ambiguity and behavioral attitudes toward it. The theoretical framework presented here is a first step toward the development of a ‘state-dependent non-Bayesian extension of EUT,’ and it has potential applications in economic modeling.

History

Citation

Economic Theory, 2017, in press

Author affiliation

/Organisation/COLLEGE OF SOCIAL SCIENCES, ARTS AND HUMANITIES/School of Management

Version

  • AM (Accepted Manuscript)

Published in

Economic Theory

Publisher

Springer Verlag

issn

0938-2259

eissn

1432-0479

Acceptance date

2017-04-05

Copyright date

2017

Available date

2018-05-18

Publisher version

https://link.springer.com/article/10.1007/s00199-017-1051-2

Notes

The file associated with this record is under embargo until 12 months after publication, in accordance with the publisher's self-archiving policy. The full text may be available through the publisher links provided above.

Language

en

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