Solution of the Ellsberg paradox by means of the principle of uncertain future
AbstractThe 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.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 8168.
Date of creation: 08 Apr 2008
Date of revision:
uncertainty; risk; utility; choice; decisions; probability;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- A1 - General Economics and Teaching - - General Economics
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- B4 - Schools of Economic Thought and Methodology - - Economic Methodology
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-15 (All new papers)
- NEP-MAC-2008-04-15 (Macroeconomics)
- NEP-UPT-2008-04-15 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tversky, Amos & Wakker, Peter, 1995. "Risk Attitudes and Decision Weights," Econometrica, Econometric Society, vol. 63(6), pages 1255-80, November.
- Harin, Alexander, 2014. "General correcting formulae for forecasts," MPRA Paper 55283, University Library of Munich, Germany.
- Harin, Alexander, 2014. "Is data interpretation in utility and prospect theories unquestionably correct?," MPRA Paper 53880, University Library of Munich, Germany.
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