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

PDF
MPRA_paper_8168.pdf Download (199kB)  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.
Item Type:  MPRA Paper 

Original Title:  Solution of the Ellsberg paradox by means of the principle of uncertain future 
Language:  English 
Keywords:  uncertainty, risk, utility, choice, decisions, probability 
Subjects:  D  Microeconomics > D8  Information, Knowledge, and Uncertainty > D81  Criteria for DecisionMaking 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 
Item ID:  8168 
Depositing User:  Alexander Harin 
Date Deposited:  08 Apr 2008 20:42 
Last Modified:  27 Aug 2016 03:28 
References:  Allais, M. (1953) “Le comportement de l'homme rationnel devant le risque: critique des postulats et axiomes de l'école Américaine” Econometrica 21, 50346. Ellsberg, D. (1961) Risk, Ambiguity and the Savage Axioms. Quarterly Journal of Economics, 75, 643669 FehrDuda, H., Schürer, M. and Schubert, R. (2006) “What Determines the Shape of the Probability Weighting Function?” Center of Economic Research at ETH Zurich, Working Paper 06/54. Harin, A. (2007) “Principle of Uncertain Future and utility” MPRA, 1959. Harin, A. (2004) “Arrangement infringement possibility approach: some economic features of largescale events” Research Announcements, Economics Bulletin, November 15, 2004 at http://www.economicsbulletin.uiuc.edu/DisplayList.asp?Type=All&Code=2#more Hey, J. and Orme, C. (1994) “Investigating Generalizations of Expected Utility Theory Using Experimental Data” Econometrica, 62, 12911326. Tversky, A. and Wakker, P. (1995) “Risk attitudes and decision weights” Econometrica, 63, 12551280. 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. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/8168 