Premium
On Risk and Uncertainty, and Objective versus Subjective Probability
Author(s) -
Sharpe Keiran
Publication year - 2018
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/1475-4932.12403
Subject(s) - rank (graph theory) , econometrics , mathematics , mathematical economics , actuarial science , computer science , economics , combinatorics
In this paper, we use the algebra R × R to characterise decision‐makers’ representations of risk and uncertainty. We show that risk can be represented by objective probabilities on one part of the algebra, and that uncertainty can be represented by subjective probabilities on the other part. Decision‐makers are shown to maximise a generalised form of rank‐dependent expected utility. Their occasionally anomalous behaviour is discussed.