Principle of uncertain future and utility Report as inadecuate

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The principle of uncertain future: the probability of a future event contains a degree of hidden uncertainty. As a result, this uncertainty in a sense, similar to vibrations, fluctuations pushes the probability value back from the bounds to the middle of its range from ~100% and ~0% to the middle probability values. In other words, the real values of high probabilities are lower than the preliminarily determined ones. Conversely, the real values of low probabilities are higher than the preliminarily determined ones. This result provides the uniform solution of a number of fundamental problems: the underweighting of high and the overweighting of low probabilities, the Allais paradox, risk aversion, loss aversion, the Ellsberg paradox, the equity premium puzzle, etc. The principle and its consequences can be applied in the fields of banking, investment, insurance, trade, industry, planning and forecasting. Explanations of the principle and examples of solution of three types of basic utility problems are provided.

Item Type: MPRA Paper -

Institution: Modern University for the Humanities-

Original Title: Principle of uncertain future and utility-

Language: English-

Keywords: risk; market; banking; industry; development; investments; insurance; hidden causes-

Subjects: D - Microeconomics > D8 - Information, Knowledge, and UncertaintyA - General Economics and Teaching > A1 - General EconomicsE - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; CapacityG - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance ; Insurance Companies ; Actuarial StudiesC - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory-

Author: Harin, Alexander


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