A Contextual Risk Model for the Ellsberg Paradox

TL;DR

This paper introduces a quantum-inspired 'contextual risk' model to explain the Ellsberg paradox, suggesting human decision-making involves a superposition of classical and quantum-like cognitive layers.

Contribution

It applies a non-Kolmogorovian, quantum-like framework to model ambiguity in decision-making, providing a novel explanation for the Ellsberg paradox.

Findings

The model captures deviations from expected utility theory.

A 'sphere model' illustrates the quantum conceptual layer in human thought.

The approach explains the paradox through the superposition of classical and quantum layers.

Abstract

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 risk' 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'.