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Allais paradox

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anomaly

anomaly  

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Overview Page
An opportunity for abnormal returns in financial markets. If markets are efficient there should be no anomalies (see efficient markets hypothesis), and the assumption that this will indeed be the ...
common ratio effect

common ratio effect  

A famous violation of expected utility theory that seems intuitively appealing to many human decision makers, a typical example being as follows. An urn contains 100 chips numbered 1 to 100. First, ...
decision theory

decision theory  

A normative (1) approach to decision making based on expected utility theory, some versions also incorporating Bayesian inference. It starts from the assumption that, for any pair of alternatives, ...
decision-making

decision-making  

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The process of acting upon the best information available in order to determine the most appropriate course of action.
Ellsberg paradox

Ellsberg paradox  

A paradox of choice that usually elicits responses inconsistent with expected utility theory. Two urns are filled with red and green balls. Urn A contains 50 red balls and 50 green balls randomly ...
expected utility theory

expected utility theory  

A theory of decision making, formalized in 1947 by the Hungarian-born US mathematician John von Neumann (1903–57) and the German-born US economist Oskar Morgenstern (1902–77), according to which a ...
modified Ellsberg paradox

modified Ellsberg paradox  

A version of the Ellsberg paradox in which the failure of expected utility theory and of subjective expected utility theory is especially clear. Two urns are each filled with white, red, and green ...
paradox

paradox  

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Subject:
Philosophy
n. (in family therapy) a surprising interpretation or suggestion made in the course of therapy in order to demonstrate the relationship between a psychological symptom and a system of family ...
revealed preference

revealed preference  

A preference inferred from observations of a decision maker's actual choices. The notion was introduced in 1931 by the English philosopher, mathematician, and economist Frank (Plumpton) Ramsey ...
risk aversion

risk aversion  

A widespread characteristic of human preferences, first discussed in 1738 by the Swiss mathematician and physicist Daniel Bernoulli (1700–82), according to which most people tend to value gains ...
St Petersburg paradox

St Petersburg paradox  

A paradox of decision making first presented to the St Petersburg Academy in 1738 by the Swiss mathematician and physicist Daniel Bernoulli (1700–82). A coin is tossed; if it falls heads then the ...
subjective expected utility theory

subjective expected utility theory  

A theory of decision making according to which a decision maker chooses an alternative or strategy (2) that maximizes subjective expected utility. It was introduced by the US decision theorist ...
sure-thing principle

sure-thing principle  

A precept, first enunciated and named by the US decision theorist Leonard J(immie) Savage (1917–71) in his book The Foundations of Statistics (1954), according to which, if an alternative A is judged ...
utility theory

utility theory  

A class of theory concerned with the behaviours, strategies, and mental processes adopted by individuals faced with making a risky choice or decision. Utility is usually taken as the subjective value ...

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