Economists often estimate a subset of their model parameters outside the model and let the decision-makers inside the model treat these point estimates as-if they are correct. This practice ignores model ambiguity, opens the door for misspecification of the decision problem, and leads to...

Economists often estimate economic models on data and use the point estimates as a stand-in for the truth when studying the model’s implications for optimal decision-making. This practice ignores model ambiguity, exposes the decision problem to misspecification, and ultimately leads to...

We present the first calibration of quantum decision theory (QDT) to an empirical data set. The data comprise 91 choices between two lotteries (two "prospects") presented in 91 random pairs made by 142 subjects offered at two separated times. First, we quantitatively account for the fraction of...

Probabilistic preference models predict that a subject makes different choices with different probabilities in repeatedly experiments with the same stimuli. This paper explains why. First, we prove that a gamble is a statistical ensemble or sample function of a random field with canonical...

We propose a new parametrization of Quantum Decision Theory (QDT), based on Rank Dependent Utility Theory (RDU). Using experimental data made of choices between pairs of lotteries, we compare QDT with "classical" decision theories, RDU and Cumulative Prospect Theory (CPT). At the aggregate...

We investigate what it means for one act to be more ambiguous than another. The question is evidently analogous to asking what makes one prospect riskier than another, but beliefs are neither objective nor representable by a unique probability. Our starting point is an abstract class of...

Humans are notoriously bad at understanding probabilities, exhibiting a host of biases and distortions that are context dependent. This has serious consequences on how we assess risks and make decisions. Several theories have been developed to replace the normative rational expectation theory at...

Most decisions in life are gambles. Should I speed up or slow down as I approach the yellow traffic light ahead? Should I invest in the stock market or in treasury bills? Should I undergo surgery or radiation therapy to treat my tumor? From mundane choices rendered with scarcely a moment's...

This paper analyzes the root cause of Ellsberg-type choices. This class of problems shares the feature that at the time of the decision, t=m, the decision maker (DM) possesses partial information about the events/propositions of interest: DM knows the objective probabilities of some sub-class...

We consider long-run behavior of agents assessing risk in terms of dynamic convex risk measures or, equivalently, utility in terms of dynamic variational preferences in an uncertain setting. By virtue of a robust representation, we show that all uncertainty is revealed in the limit and agents...