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A quantum-probabilistic paradigm: Non-consequential reasoning and state dependence in investment choice

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journal contribution
posted on 2019-05-21, 10:28 authored by Emmanuel Haven, Polina Khrennikova
Seminal findings involving payoffs (Shafir and Tversky, 1992; Tversky and Shafir, 1992; Shafir, 1994) showed that individuals exhibit state-dependent behaviour in different informational contexts. In particular, in the condition of ambiguity as well as risk, individuals tend to exhibit ambiguity aversion. The core principle of rational (consequential) behaviour conceived by Savage (1954), that is the ‘Savage Sure Thing’ principle, has been shown to be violated. In mathematical language, this violation is equivalent to the violation of the “Law of total probability” (Kolmogorov, 1933). Given the importance of original findings in the call for a generalization of classical expected utility, we perform in this paper a set of experiments related to expressing investment preferences: (i) under objective risk, (ii) after a preceding gain, or loss. In accordance with previous findings we detected state dependence in human judgement (previous gain or loss changed the preference state of the participants) as well as violation of consequential reasoning under risk. We propose a quantum probabilistic model of agents’ preferences, where non-consequentialism and state dependence can be well explained via interference of complex probability amplitudes. A geometric depiction of the experimental findings with a state reconstruction procedure from statistical data via the inverse Born's rule (1926), allows for an accurate representation of agents’ preference formation in risky investment choice.

History

Citation

Journal of Mathematical Economics, 2018, 78, pp. 186-197

Author affiliation

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

Version

  • AM (Accepted Manuscript)

Published in

Journal of Mathematical Economics

Publisher

Elsevier

issn

0304-4068

eissn

1873-1538

Acceptance date

2018-04-05

Copyright date

2018

Available date

2019-10-12

Publisher version

https://www.sciencedirect.com/science/article/pii/S0304406818300442?via=ihub

Notes

The file associated with this record is under embargo until 18 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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