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Forbidden zones and biases for the expectation of a random variable. Version 2

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  • Harin, Alexander

Abstract

A forbidden zones theorem is proven in the present article. If some non-zero lower bound exists for the variance of a random variable, whose support is located in a finite interval, then non-zero bounds or forbidden zones exist for its expectation near the boundaries of the interval. The article is motivated by the need of a theoretical support for the practical analysis of the influence of a noise that was performed for the purposes of behavioral economics, utility and prospect theories, decision and social sciences and psychology. The four main contributions of the present article are: the mathematical support, approach and model those are developed for this analysis and the successful uniform applications of the model in more than one domain. In particular, the approach supposes that subjects decide as if there were some biases of the expectations. Possible general consequences and applications of the theorem for a noise and biases of measurement data are preliminary considered.

Suggested Citation

  • Harin, Alexander, 2018. "Forbidden zones and biases for the expectation of a random variable. Version 2," MPRA Paper 85607, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:85607
    as

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    References listed on IDEAS

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    5. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
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    More about this item

    Keywords

    probability; variance; noise; bias; utility theory; prospect theory; behavioral economics; decision sciences; measurement;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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