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.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: uncertainty, risk, utility, choice, decisions, probability
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling; A - General Economics and Teaching > A1 - General Economics; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E17 - Forecasting and Simulation: Models and Applications; B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology; D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles

References

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Харин, А.А. (2008) (In Russian) “CREATION OF A BASIC EQUATION OF APPROXIMATIVE FORECASTING. PLANNING AND FORECASTING IN COMPLEX SYSTEMS” The report submitted on the International Scientific School "MODELLING and ANALYSIS of SAFETY and RISK in COMPLEX SYSTEMS" 2008.

Харин, А.А. (2007) (In Russian) “PRINCIPLE OF UNCERTAIN FUTURE, EXAMPLES OF ITS APPLICATION IN ECONOMICS, POTENTIALS OF ITS APPLICATIONS IN THEORIES OF COMPLEX SYSTEMS, IN SET THEORY, PROBABILITY THEORY AND LOGIC” International Scientific School "MODELLING and ANALYSIS of SAFETY and RISK in COMPLEX SYSTEMS" 2007.