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Ellsberg’s Decision Rules and Keynes’s Long-Term Expectations

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  • Marcello Basili

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  • Carlo Zappia

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Abstract

This paper presents an intuitive way to represent Keynes’s notion of long-term expectations and its implications for decision-making, using the so-called e-contamination approach. Further to a suggestion by Ellsberg, a coherent Keynesian expectational function for decisions under uncertainty is derived. The paper draws on the similarities between the analyses of Keynes and Ellsberg and contends that much of current decision theory under ambiguity follows in Keynes’s footsteps

Suggested Citation

  • Marcello Basili & Carlo Zappia, 2018. "Ellsberg’s Decision Rules and Keynes’s Long-Term Expectations," Department of Economics University of Siena 777, Department of Economics, University of Siena.
  • Handle: RePEc:usi:wpaper:777
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    More about this item

    Keywords

    uncertainty; expectations; Keynes; consensus distribution; epsilon-contamination;
    All these keywords.

    JEL classification:

    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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