Projective expected utility: a subjective formulation

Abstract

Motivated by classical decision-theoretic paradoxes (Allais 1953, Ellsberg 1961), we introduce a projective generalization of expected utility along the lines of the quantum-mechanical generalization of probability theory. The resulting decision theory accommodates the paradoxes, while retaining significant simplicity and tractability. In particular, every finite game within this larger class of preferences still has an equilibrium.