Subjective Trusts and Prospects: Some Practical Remarks on Decision Making with Imperfect Information

Abstract

The paper addresses decision making with imperfect information and suggests simple techniques for handling uncertainties in the framework of the Kahneman and Tversky prospects theory using methods of subjective beliefs governed by uninorm and absorbing norm aggregators. The suggested method utilizes observations that people assign higher probabilities to predictions, which have either high or low probabilities and lower probabilities to the predictions with intermediate probabilities, and usually prefer avoiding choice to other alternatives. The method is verified by direct application to the original experimental results presented by Kahneman and Tversky. In addition, it is demonstrated that the suggested model completely coincides both with the recent Enke and Graeber model of cognitive uncertainty and with the conventional model based on the Shannon entropy and provides a unified framework for both techniques. In the discussion section, the paper addresses the inferences of the suggested method in the economic studies.