The expected utility hypothesis and Savage's Sure-Thing Principle are violated in real life decisions, as shown by the Allais and Ellsberg paradoxes. The popular explanation in terms of ambiguity aversion is not completely accepted. As a consequence, uncertainty is still problematical in economics. To overcome these difficulties a distinction between risk and ambiguity has been introduced which depends on the existence of a Kolmogorovian probabilistic structure modeling these uncertainties. On the other hand, evidence of everyday life suggests that context plays a fundamental role in human decisions under uncertainty. Moreover, it is well known from physics that any probabilistic structure modeling contextual interactions between entities structurally needs a non-Kolmogorovian framework admitting a quantum-like representation. For this reason, we have recently introduced a notion of contextual risk to mathematically capture situations in which ambiguity occurs. We prove in this paper that the contextual risk approach can be applied to the Ellsberg paradox, and elaborate a sphere model within our hidden measurement formalism which reveals that it is the overall conceptual landscape that is responsible of the disagreement between actual human decisions and the predictions of expected utility theory, which generates the paradox. This result points to the presence of a quantum conceptual layer in human thought which is superposed to the usually assumed classical logical layer, and conceptually supports the thesis of several authors suggesting the presence of quantum structure in economics and decision theory.
The expected utility hypothesis and Savage's Sure-Thing Principle are violated in real life decisions, as shown by the Allais and Ellsberg paradoxes. The popular explanation in terms of ambiguity aversion is not completely accepted. As a consequence, uncertainty is still problematical in economics. To overcome these difficulties a distinction between risk and ambiguity has been introduced which depends on the existence of a Kolmogorovian probabilistic structure modeling these uncertainties. On the other hand, evidence of everyday life suggests that context plays a fundamental role in human decisions under uncertainty. Moreover, it is well known from physics that any probabilistic structure modeling contextual interactions between entities structurally needs a non-Kolmogorovian framework admitting a quantum-like representation. For this reason, we have recently introduced a notion of contextual risk to mathematically capture situations in which ambiguity occurs. We prove in this paper that the contextual risk approach can be applied to the Ellsberg paradox, and elaborate a sphere model within our hidden measurement formalism which reveals that it is the overall conceptual landscape that is responsible of the disagreement between actual human decisions and the predictions of expected utility theory, which generates the paradox. This result points to the presence of a quantum conceptual layer in human thought which is superposed to the usually assumed classical logical layer, and conceptually supports the thesis of several authors suggesting the presence of quantum structure in economics and decision theory.
The Allais and Ellsberg paradoxes show that the expected utility hypothesis and Savage's Sure-Thing Principle are violated in real life decisions. The popular explanation in terms of 'ambiguity aversion' is not completely accepted. On the other hand, we have recently introduced a notion of 'contextual risk' to mathematically capture what is known as 'ambiguity' in the economics literature. Situations in which contextual risk occurs cannot be modeled by Kolmogorovian classical probabilistic structures, but a non-Kolmogorovian framework with a quantum-like structure is needed. We prove in this paper that the contextual risk approach can be applied to the Ellsberg paradox, and elaborate a 'sphere model' within our 'hidden measurement formalism' which reveals that it is the overall conceptual landscape that is responsible of the disagreement between actual human decisions and the predictions of expected utility theory, which generates the paradox. This result points to the presence of a 'quantum conceptual layer' in human thought which is superposed to the usually assumed 'classical logical layer'.
The Allais and Ellsberg paradoxes show that the expected utility hypothesis and Savage's Sure-Thing Principle are violated in real life decisions.The popular explanation in terms of ambiguity aversion is not completely accepted.On the other hand, we have recently introduced a notion of contextual risk to mathematically capture what is known as ambiguity in the economics literature.Situations in which contextual risk occurs cannot be modeled by Kolmogorovian classical probabilistic structures, but a non-Kolmogorovian framework with a quantum-like structure is needed.We prove in this paper that the contextual risk approach can be applied to the Ellsberg paradox, and elaborate a sphere model within our hidden measurement formalism which reveals that it is the overall conceptual landscape that is responsible of the disagreement between actual human decisions and the predictions of expected utility theory, which generates the paradox.This result points to the presence of a quantum conceptual layer in human thought which is superposed to the usually assumed classical logical layer.
Uncertainty in economics still poses some fundamental problems illustrated, e.g., by the Allais and Ellsberg paradoxes. To overcome these difficulties, economists have introduced an interesting distinction between 'risk' and 'ambiguity' depending on the existence of a (classical Kolmogorovian) probabilistic structure modeling these uncertainty situations. On the other hand, evidence of everyday life suggests that 'context' plays a fundamental role in human decisions under uncertainty. Moreover, it is well known from physics that any probabilistic structure modeling contextual interactions between entities structurally needs a non-Kolmogorovian quantum-like framework. In this paper we introduce the notion of 'contextual risk' with the aim of modeling a substantial part of the situations in which usually only 'ambiguity' is present. More precisely, we firstly introduce the essentials of an operational formalism called 'the hidden measurement approach' in which probability is introduced as a consequence of fluctuations in the interaction between entities and contexts. Within the hidden measurement approach we propose a 'sphere model' as a mathematical tool for situations in which contextual risk occurs. We show that a probabilistic model of this kind is necessarily non-Kolmogorovian, hence it requires either the formalism of quantum mechanics or a generalization of it. This insight is relevant, for it explains the presence of quantum or, better, quantum-like, structures in economics, as suggested by some authors, and can serve to solve the aforementioned paradoxes.
Uncertainty in economics still poses some fundamental problems illustrated, e.g., by the Allais and Ellsberg paradoxes.To overcome these difficulties, economists have introduced an interesting distinction between risk and ambiguity depending on the existence of a (classical Kolmogorovian) probabilistic structure modeling these uncertainty situations.On the other hand, evidence of everyday life suggests that context plays a fundamental role in human decisions under uncertainty.Moreover, it is well known from physics that any probabilistic structure modeling contextual interactions between entities structurally needs a non-Kolmogorovian quantum-like framework.In this paper we introduce the notion of contextual risk with the aim of modeling a substantial part of the situations in which usually only ambiguity is present.More precisely, we firstly introduce the essentials of an operational formalism called the hidden measurement approach in which probability is introduced as a consequence of fluctuations in the interaction between entities and contexts.Within the hidden measurement approach we propose a sphere model as a mathematical tool for situations in which contextual risk occurs.We show that a probabilistic model of this kind is necessarily non-Kolmogorovian, hence it requires either the formalism of quantum mechanics or a generalization of it.This insight is relevant, for it explains the presence of quantum or, better, quantum-like, structures in economics, as suggested by some authors, and can serve to solve the aforementioned paradoxes.
Empirical evidence has confirmed that quantum effects occur frequently also outside the microscopic domain, while quantum structures satisfactorily model various situations in several areas of science, including biological, cognitive and social processes. In this paper, we elaborate a quantum mechanical model which faithfully describes the Ellsberg paradox in economics, showing that the mathematical formalism of quantum mechanics is capable to represent the ambiguity present in this kind of situations, because of the presence of contextuality. Then, we analyze the data collected in a concrete experiment we performed on the Ellsberg paradox and work out a complete representation of them in complex Hilbert space. We prove that the presence of quantum structure is genuine, that is, interference and superposition in a complex Hilbert space are really necessary to describe the conceptual situation presented by Ellsberg. Moreover, our approach sheds light on 'ambiguity laden' decision processes in economics and decision theory, and allows to deal with different Ellsberg-type generalizations, e.g., the Machina paradox.
The core assumptions of modern economic utility theories such as rationality have been placed under scrutiny by recent studies in decision theory and behavioural economics and fi?nance. The main questions that were explored in these studies could be expressed as follows: do people always make rational choices? Do they make use of the normative rules of traditional logic and probability when dealing with risk and uncertainty? Are there any alternative methods to capture choices and reasoning when individuals are faced with uncertainty and risk? In this thesis I will elaborate on an interdisciplinary application of so-called QL (quantum-like) models to decision-making problems in ?finance and other socio-economic contexts. The core inquiry of this work is related to experimental tests of decision making with the help of investment related questions. Calculus and logic borrowed from quantum physics will be used to develop probabilistic models for the formation and evolution of decisions in ?finance context with the potential to generalize to other social decision- making settings. The main fi?ndings of this thesis can be summarized as follows: individuals exhibit preference reversals and context-dependent behaviour in different informational contexts. In particular, in condition of risk individuals exhibit uncertainty aversion and thus aversion to participating in other investment task, violating the postulates of classical probability theory. The core principle of rational (consequential) behaviour conceived by Savage (1954) [207], that is the "Savage Sure Thing" principle, was shown to be violated. In mathematical language, this violation is equivalent to the violation of the "Law of total probability". Implying contextuality of human judgement, different events cannot be jointly evaluated in a single probability space. Moreover, additional experimental fi?ndings showed that participants exhibited reference dependence in their risk attitudes depending on the preceding gain respective loss. These fi?ndings were statistically signi?cant and a quantum model for accommodating the above effects of contextual behaviour is introduced. A geometric depiction of the experimental fi?ndings was proposed. A so-called `state reconstruction' procedure from statistical data was performed via the inverse Born's rule (1926) [47], allowing the construction of a complete representation of agents' resolution from indeterminacy.