We prove the existence of hidden variables, or, what we call generalized common causes, for finite sequences of pairwise correlated random variables that do not have a joint probability distribution. The hidden variables constructed have upper probability distributions that are nonmonotonic. The theorem applies directly to quantum mechanical correlations that do not satisfy the Bell inequalities.

Quantum mechanical entangled configurations of particles that do not satisfy Bell’s inequalities, or equivalently, do not have a joint probability distribution, are familiar in the foundational literature of quantum mechanics. Nonexistence of a joint probability measure for the correlations predicted by quantum mechanics is itself equivalent to the nonexistence of local hidden variables that account for the correlations (for a proof of this equivalence, see Suppes and Zanotti, 1981). From a philosophical standpoint it is natural to ask what sort of (...) concept can be used to provide a “joint” analysis of such quantum correlations. In other areas of application of probability, similar but different problems arise. A typical example is the introduction of upper and lower probabilities in the theory of belief. A person may feel uncomfortable assigning a precise probability to the occurrence of rain tomorrow, but feel comfortable saying the probability should be greater than ½ and less than ⅞. Rather extensive statistical developments have occurred for this framework. A thorough treatment can be found in Walley (1991) and an earlier measurement-oriented development in Suppes (1974). It is important to note that this focus on beliefs, or related Bayesian ideas, is not concerned, as we are here, with the nonexistence of joint probability distributions. Yet earlier work with no relation to quantum mechanics, but focused on conditions for existence has been published by many people. For some of our own work on this topic, see Suppes and Zanotti (1989). Still, this earlier work naturally suggested the question of whether or not upper and lower measures could be used in quantum mechanics, as a generalization of.. (shrink)

In the insurance literature, it is often argued that private markets can provide insurance against ‘risks’ but not against ‘uncertainties’ in the sense of Knight ([1921]) or Keynes ([1921]). This claim is at odds with the standard economic model of risk exchange which, in assuming that decision-makers are always guided by point-valued subjective probabilities, predicts that all uncertainties can, in theory, be insured. Supporters of the standard model argue that the insuring of highly idiosyncratic risks by Lloyd's of London proves (...) that this is so even in practice. The purpose of this article is to show that Bruno de Finetti, famous as one of the three founding fathers of the subjective approach to probability assumed by the standard model, actually made a theoretical case for uncertainty within the subjectivist approach. We draw on empirical evidence from the practice of underwriters to show how this case may help explain the reluctance of insurers to cover highly uncertain contingencies. (shrink)