EVIDENCE THEORY: A MATHEMATICAL FRAMEWORK FOR UNPREDICTABLE HYPOTHESES

Guido Fioretti

Metroeconomica, 2004, vol. 55, issue 4, 345-366

Abstract: Shafer's evidence theory is a branch of the mathematics of uncertain reasoning that allows for novel possibilities to be conceived by a decision‐maker. Many of its findings exhibit striking similarities with an alternative decision theory put forward by Shackle in the 1950s, before expected utility maximization monopolized the scene. Evidence theory does not attempt to formalize the emergence of novelties, but it is a suitable framework for reconstructing the formation of beliefs when novelties appear. An application to decision‐making in the biotech and pharmaceutical industries illustrates the potentialities of evidence theory, as well as its shortcomings.

Date: 2004
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