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 ri 7d0 sk' 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'. [more]

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 uncertain 988 ty 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. [more]

The 'expec 8a4 ted utility hypothesis' is one of the foundations of classical approaches to economics and decision theory and Savage's 'Sure-Thing Principle' is a fundamental element of it. It has been put forward that real-life situations exist, illustrated by the 'Allais' and 'Ellsberg paradoxes', in which the Sure-Thing Principle is violated, and where also the expected utility hypothesis does not hold. We have recently presented strong arguments for the presence of a double layer structure, a 'classical logical' and a 'quantum conceptual', in human thought and that the quantum conceptual mode is responsible of the above violation. We consider in this paper the Ellsberg paradox, perform an experiment with real test subjects on the situation considered by Ellsberg, and use the collected data to elaborate a model for the conceptual landscape surrounding the decision situation of the paradox. We show that it is the conceptual landscape which gives rise to a violation of the Sure-Thing Principle and leads to the paradoxical situation discovered by Ellsberg. [more]

The expected utility hypothesis is one of the building blocks of classical economic theory and founded on Savage's Sure-Thing Principle. It has been put forward, e.g. by situations such as the Allais and Ellsberg paradoxes, that real-life situations can violate Savage's Sure-Thing Principle and hence also expected utility. We analyze how this violation is connected to the presence of the 'disjunction effect' of decision theory and use our earlier study of this effect in concept theory to put forward an explanation of the violation of Savage's Sure-Thing Principle, namely the presence of 'quantum conceptual thought' next to 'classical logical thought' within a double layer structure of human thought during the decision process. Quantum conceptual thought can be modeled mathematically by the quantum mechanical formalism, which we illustrate by modeling the Hawaii problem situation, a well-known example of the disjunction effect, and we show how the dynamics in the Hawaii problem situation is generated by the whole conceptual landscape surrounding the decision situation. [more]