Journal of Mathematical Finance

Volume 14, Issue 1 (February 2024)

ISSN Print: 2162-2434   ISSN Online: 2162-2442

Google-based Impact Factor: 0.87  Citations  h5-index & Ranking

Quantum Mechanics Approach for Risk Aversion, Prudence, and Temperance

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DOI: 10.4236/jmf.2024.141007    52 Downloads   189 Views  
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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.

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Yamashita, M. (2024) Quantum Mechanics Approach for Risk Aversion, Prudence, and Temperance. Journal of Mathematical Finance, 14, 130-142. doi: 10.4236/jmf.2024.141007.

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