Mathematical Basis of Quantum Decision Theory

Vyacheslav I. Yukalov and Didier Sornette
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Vyacheslav I. Yukalov: ETH Zürich and Joint Institute for Nuclear Research
Didier Sornette: ETH Zürich and Swiss Finance Institute

No 08-25, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Following the ideas of Bohr, Von Neumann, and Benioff, we formulate quantum decision theory (QDT) as the quantum-mechanical theory of measurement for probability operators. QDT captures the effect of superposition of composite prospects, including many incorporated intentions. It is based on the hypothesis that the thought processes of real human beings involved in the definition and analysis of alternative prospects and scenarios do not necessarily separate them according to the recipes of standard probability theory and of classical utility theory. Our QDT formalizes systematically a broader class of decision making processes in which prospects can interact, interfere and remain entangled. The mathematical QDT is developed so as to be applicable to real-life decision making processes. We demonstrate that all known anomalies and paradoxes documented in the context of classical utility theory are reducible to just a few mathematical archetypes, all of which finding straightforward explanations in the framework of QDT. Interference terms, which are essential for resolving the paradoxes, quantify the aversion of human beings to uncertainty and/or to perceived potential loss resulting from their decisions.

Keywords: decision theory; quantum theory; Hilbert space; utility theory; emotions; loss aversion; uncertainty aversion; Allais paradox; independence paradox; inversion paradox; Ellsberg paradox; conjunction fallacy; disjunction effect; isolation effect (search for similar items in EconPapers)
JEL-codes: A12 C02 D81 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2008-08
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0825

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