Quantum Decision Theory and the Ellsberg Paradox

58 Pages Posted: 25 Sep 2018

See all articles by Ali al-Nowaihi

Ali al-Nowaihi

University of Leicester - Department of Economics

Sanjit Dhami

University of Leicester

Mengxing Wei

University of Leicester - Division of Economics, School of Business, Students

Date Written: July 25, 2018

Abstract

We formulate a simple quantum decision model of the Ellsberg paradox. We report the results of an experiment we performed to test the matching probabilities predicted by this model using an incentive compatible method. We find that the theoretical predictions of the model are in conformity with our experimental results. We compare the predictions of our quantum model with those of probably the most successful non-quantum model of ambiguity, namely, the source dependent model. 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.

Keywords: quantum probability, the Ellsberg paradox, the source dependent model, the law of total probability, the law of reciprocity, the Feynman rules, projective expected utility, bounded rationality, Diebold-Mariano forecasting tests

JEL Classification: D030

Suggested Citation

al-Nowaihi, Ali and Dhami, Sanjit and Wei, Mengxing, Quantum Decision Theory and the Ellsberg Paradox (July 25, 2018). CESifo Working Paper Series No. 7158. Available at SSRN: https://ssrn.com/abstract=3251184

Ali Al-Nowaihi (Contact Author)

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

Sanjit Dhami

University of Leicester ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

HOME PAGE: http://www2.le.ac.uk/departments/economics/people/sdhami

Mengxing Wei

University of Leicester - Division of Economics, School of Business, Students ( email )

United Kingdom

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