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Ellsberg Rules and Keynes’s State of Long-Term Expectation: More Than an Accordance

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  • Marcello Basili

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Abstract

This paper advances an intuitive way to represent Keynes’s notion of long-term expectation. The epsilon-contamination approach is introduced and a rational and coherent decision rule is derived. The result is evidence that Ellsberg and Keynes share the notion of uncertainty and adopt the same class of decision rules.

Suggested Citation

  • Marcello Basili, 2013. "Ellsberg Rules and Keynes’s State of Long-Term Expectation: More Than an Accordance," Department of Economics University of Siena 685, Department of Economics, University of Siena.
  • Handle: RePEc:usi:wpaper:685
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    File URL: http://repec.deps.unisi.it/quaderni/685.pdf
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    References listed on IDEAS

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    1. J. M. Keynes, 1937. "The General Theory of Employment," The Quarterly Journal of Economics, Oxford University Press, vol. 51(2), pages 209-223.
    2. Marcello Basili & Alain Chateauneuf, 2013. "Aggregation of coherent experts opinion: a tractable extreme-outcomes consistent rule," Department of Economics University of Siena 676, Department of Economics, University of Siena.
    3. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    4. Chateauneuf, Alain & Eichberger, Jurgen & Grant, Simon, 2007. "Choice under uncertainty with the best and worst in mind: Neo-additive capacities," Journal of Economic Theory, Elsevier, vol. 137(1), pages 538-567, November.
    5. Fontana, Giuseppe & Gerrard, Bill, 2004. "A Post Keynesian theory of decision making under uncertainty," Journal of Economic Psychology, Elsevier, vol. 25(5), pages 619-637, October.
    6. Lucas, Robert E, Jr, 1980. "Methods and Problems in Business Cycle Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 696-715, November.
    7. Lawson, Tony, 1985. "Uncertainty and Economic Analysis," Economic Journal, Royal Economic Society, vol. 95(380), pages 909-927, December.
    8. Gerrard, Bill, 1994. "Beyond Rational Expectations: A Constructive Interpretation of Keynes's Analysis of Behaviour under Uncertainty," Economic Journal, Royal Economic Society, vol. 104(423), pages 327-337, March.
    9. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    10. Michael Emmett Brady & Rogério Arthmar, 2012. "Keynes, Boole and the interval approach to probability," History of Economic Ideas, Fabrizio Serra Editore, Pisa - Roma, vol. 20(3), pages 65-84.
    11. Kopylov, Igor, 2009. "Choice deferral and ambiguity aversion," Theoretical Economics, Econometric Society, vol. 4(2), June.
    12. Marcello Basili & Alain Chateauneuf, 2011. "Extreme events and entropy: A multiple quantile utility model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00685405, HAL.
    13. Marcello Basili & Luca Pratelli, 2013. "Aggregation of not necessarily independent opinions," Department of Economics University of Siena 677, Department of Economics, University of Siena.
    14. Wakker, Peter & Tversky, Amos, 1993. "An Axiomatization of Cumulative Prospect Theory," Journal of Risk and Uncertainty, Springer, vol. 7(2), pages 147-175, October.
    15. Basili, Marcello & Zappia, Carlo, 2009. "Keynes's "non-numerical" probabilities and non-additive measures," Journal of Economic Psychology, Elsevier, vol. 30(3), pages 419-430, June.
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    More about this item

    Keywords

    Keynes; Ellsberg; expectation; consensus distribution; uncertainty; epsilon-contamination.;

    JEL classification:

    • B16 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Quantitative and Mathematical
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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