Quantum Decision Theory, Bounded Rationality and the Ellsberg Paradox. (June 2019)

• Record Type: Journal Article
• Authors: Wei, Mengxing; al-Nowaihi, Ali; Dhami, Sanjit
• Other Names: Dasgupta Utteeyo guest-editor.
• Is Part Of: Studies in microeconomics. Volume 7:Number 1(2019:Jun.)
• Page Start: 110
• Page End: 139
• Publication Date: 2019-06
• Subjects: Quantum probability -- Ellsberg paradox -- source dependent model -- projective expected utility -- bounded rationality; Microeconomics -- Periodicals; 338.505
• DOI: 10.1177/2321022219845568
• Languages: English
• ISSNs: 2321-0222

Abstract

Abstract: We test a simple quantum decision model of the Ellsberg paradox. We find that the theoretical predictions of the model are in conformity with our experimental results. The predictions of our quantum model are not statistically significantly different from those of the source dependent model. The source dependent model requires the specification of probability weighting functions in order to fit the evidence. On the other hand, our quantum model makes no recourse to probability weighting functions. This suggests that much of what is normally attributed to probability weighting may actually be due to quantum probability. When we replace quantum probability by Kolmogorov probability in our model, then the Ellsberg paradox reemerges. Hence, we make essential use of quantum probability theory. All our development uses no more than standard linear algebra and real numbers, which are very familiar to economists. This makes our paper accessible to a wider audience than the quantum community. JEL Classification: D01, D81, D91