TITLE:
Quantum Mechanics Approach for Risk Aversion, Prudence, and Temperance
AUTHORS:
Miwaka Yamashita
KEYWORDS:
Quantum Mechanics, Risk Aversion, Prudence, Temperance, Utility
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.14 No.1,
February
29,
2024
ABSTRACT: The ideas
from quantum mechanics (QM) have been used as one of problem-solving methods in
the field of economics, especially in game theory and decision theory, starting
about “coin flip” and “prisoner’s dilemma” and now days “decision paradoxes”. In
this paper, the concept of QM is applied to prudence and temperance.
Classically, risk aversion, prudence, and temperance are characterized by the
risk attitude toward losses and its volatility (variance), skewness, and
kurtosis as well as by utility theory, where derivatives of the utility are
related to risk aversion, prudence, and temperance. Here those are treated as
decision paradoxes and in the QM model, probabilities of alternatives are
tentatively set as unknown and a person’s subjective probabilities toward the
alternatives are set as parameterized. Investigating the utility difference
before averaging can show the difference among risk aversion, prudence, and
temperance. In that sense, a new QM interpretation of risk aversion, prudence,
and temperance as opposed to the classical interpretation was founded in the
first time.