Illustrate what assumptions is the theory based

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Reference no: EM1331594

Ellsberg paradox and expected utility theory

Important Note: Please try to use mathematical notation as much as you can to demonstrate your answer, but don't forget to carefully define each step you make.

Question

(a) What is expected utility theory?
(b) On what assumptions is the theory based, and how plausible are these assumptions?
(c) Explain the Ellsberg paradox?
(d) Do such paradoxes imply we should abandon the theory?

Reference no: EM1331594

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