A General Theory of Decision Making

Frank Hansen
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Frank Hansen: Institute of Economics, University of Copenhagen

No 2004/02, FRU Working Papers from University of Copenhagen. Department of Economics. Finance Research Unit

Abstract: We formulate a general theory of decision making based on a lattice of observable events, and we exhibit a large class of representations called the general model. Some of the representations are equivalent to the so called standard model in which observable events are modelled by an algebra of measurable subsets of a state space, while others are not compatible with such a description. We show that the general model collapses to the standard model, if and only if an additional axiom is satisfied. We argue that this axiom is not very natural and thus assert that the standard model may not be general enough to model all relevant phenomena in economics. Using the general model we are (as opposed to Schmeidler [18]) able to rationalize Ellsberg's paradox without the introduction of non-additive measures.

Keywords: theory of decision making; Ellsberg's paradox (search for similar items in EconPapers)
JEL-codes: D8 G12 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2003-10
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Citations: View citations in EconPapers (1)

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