Munich Personal RePEc Archive

Solution of the Ellsberg paradox by means of the principle of uncertain future

Harin, Alexander (2008): Solution of the Ellsberg paradox by means of the principle of uncertain future.

[img]
Preview
PDF
MPRA_paper_8168.pdf

Download (195Kb) | Preview

Abstract

The principle of uncertain future: the probability of a future event contains an (hidden) uncertainty. The first consequence of the principle: the real values of high probabilities are lower than the preliminarily determined ones; conversely, the real values of low probabilities can be higher than the preliminarily determined ones. The first consequence provides an uniform solution of the underweighting of high and the overweighting of low probabilities, of the Allais paradox, risk aversion, loss aversion, the equity premium puzzle, the “fourfold pattern” paradox, etc. The second consequence: the present probability system of a future event is incomplete. The second consequence provides a solution of the incompleteness of systems of preferences, of ambiguity aversion, of the Ellsberg paradox, etc.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.