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Title: A Generalized Probability Framework to Model Economic Agents’ Decisions under Uncertainty
Authors: Haven, Emmanuel E.
Sozzo, S.
First Published: 23-Dec-2015
Publisher: Elsevier
Citation: International Review of Financial Analysis, 47, pp. 297–303
Abstract: The applications of techniques from statistical (and classical) mechanics to model interesting problems in economics and finance have produced valuable results. The principal movement which has steered this research direction is known under the name of ‘econophysics’. In this paper, we illustrate and advance some of the findings that have been obtained by applying the mathematical formalism of quantum mechanics to model human decision making under ‘uncertainty’ in behavioral economics and finance. Starting from Ellsberg's seminal article, decision making situations have been experimentally verified where the application of Kolmogorovian probability in the formulation of expected utility is problematic. Those probability measures which by necessity must situate themselves in Hilbert space (such as ‘quantum probability’) enable a faithful representation of experimental data. We thus provide an explanation for the effectiveness of the mathematical framework of quantum mechanics in the modeling of human decision making. We want to be explicit though that we are not claiming that decision making has microscopic quantum mechanical features.
DOI Link: 10.1016/j.irfa.2015.12.002
ISSN: 1057-5219
Version: Post-print
Status: Peer-reviewed
Type: Journal Article
Rights: Copyright © 2015 Elsevier Inc. All rights reserved. This manuscript version is made available after the end of the embargo period under the CC-BY-NC-ND 4.0 license 
Description: The file associated with this record is under a 36-month embargo from publication in accordance with the publisher's self-archiving policy. The full text may be available through the publisher links provided above.
Appears in Collections:Published Articles, School of Management

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