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Principle of Uncertain Future

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  • Alexander Harin

    () (Modern University for the Humanities)

Abstract

The principle of uncertain future: the probability of a future event contains a degree of (hidden) uncertainty. As a result, this uncertainty (in a sense, similar to vibrations, fluctuations) pushes the probability value back from the bounds to the middle of its range (from the very high and very low probability values to the middle ones). In other words, the real values of high probabilities are lower than the preliminarily determined ones. Conversely, the real values of low probabilities are higher than the preliminarily determined ones. This result provides the uniform solution of a number of fundamental problems: the underweighting of high and the overweighting of low probabilities, the Allais paradox, risk aversion, loss aversion, the Ellsberg paradox, the equity premium puzzle, etc. The principle and its consequences can be applied in the fields of banking, investment, insurance, trade, industry, planning and forecasting. Explanations of the principle and examples of solution of three types of fundamental problems are provided.

Suggested Citation

  • Alexander Harin, 2006. "Principle of Uncertain Future," Microeconomics harin_alexander.34115-061, Socionet.
  • Handle: RePEc:nos:wuwpmi:harin_alexander.34115-061203
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    File URL: http://harin.socionet.ru/files/Principle061203.pdf
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    References listed on IDEAS

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    1. Alexander Harin, 2005. "A new approach to solve old problems," Game Theory and Information 0505005, EconWPA.
    2. Carmela Di Mauro & Anna Maffioletti, 2004. "Attitudes to risk and attitudes to uncertainty: experimental evidence," Applied Economics, Taylor & Francis Journals, vol. 36(4), pages 357-372.
    3. Helga Fehr-Duda & Marc Schürer & Renate Schubert, 2006. "What Determines the Shape of the Probability Weighting Function?," CER-ETH Economics working paper series 06/54, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    4. John Hey, 2005. "Why We Should Not Be Silent About Noise," Experimental Economics, Springer;Economic Science Association, vol. 8(4), pages 325-345, December.
    5. Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November.
    6. repec:ebl:ecbull:v:28:y:2004:i:11:p:a0 is not listed on IDEAS
    7. Capuano, Christian, 2006. "Strategic noise traders and liquidity pressure with a physically deliverable futures contract," International Review of Economics & Finance, Elsevier, vol. 15(1), pages 1-14.
    8. Alexander Harin, 2004. "Arrangement infringement possibility approach: some economic features of large-scale events," Economics Bulletin, AccessEcon, vol. 28(11), pages 1.
    9. Alexander Harin, 2006. "Economic uncertainty principle?," Working Papers halshs-00090791, HAL.
    10. Tversky, Amos & Wakker, Peter, 1995. "Risk Attitudes and Decision Weights," Econometrica, Econometric Society, vol. 63(6), pages 1255-1280, November.
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    Citations

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    Cited by:

    1. Harin, Alexander, 2011. "Теоремы О Существовании Разрывов На Числовых Отрезках И В Шкале Вероятностей И Некоторые Возможности Их Применения
      [Theorems of existence of the ruptures in numerical segments and in the probabilit
      ," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 5-7.
    2. Alexander HARIN, 2014. "Partially Unforeseen Events. Corrections and Correcting Formulae for Forecasts," Expert Journal of Economics, Sprint Investify, vol. 2(2), pages 69-79.
    3. Harin, Alexander, 2014. "General correcting formulae for forecasts," MPRA Paper 55283, University Library of Munich, Germany.

    More about this item

    Keywords

    uncertainty; risk; market; banking; industry; development; investments; insurance; utility;

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • D - Microeconomics
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • A1 - General Economics and Teaching - - General Economics
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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