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New theory distinguishes risk from uncertainty, changing decision-making forever.

SSRN Electronic Journal
Subjective Expected Utility Theory with 'Small Worlds'
Jacob Gyntelberg, Frank Hansen

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The article introduces a new way to make decisions called "small worlds" theory. It suggests that when faced with a decision, we create a smaller world of relevant events within the bigger world. By using this approach, we can better distinguish between known risks and unknown uncertainties. This theory allows us to separate our personal beliefs about the likelihood of events from our preferences for those outcomes, helping us make more informed choices.