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"Reverse Bayesianism": A Choice-Based Theory of Growing Awareness

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  • Edi Karni
  • Marie-Louise Vier?

Abstract

This article introduces a new approach to modeling the expanding universe of decision makers in the wake of growing awareness, and invokes the axiomatic approach to model the evolution of decision makers' beliefs as awareness grows. The expanding universe is accompanied by extension of the set of acts, the preference relations over which are linked by a new axiom, invariant risk preferences, asserting that the ranking of lotteries is independent of the set of acts under consideration. The main results are representation theorems and rules for updating beliefs over expanding state spaces and events that have the flavor of "reverse Bayesianism."

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.103.7.2790
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 103 (2013)
Issue (Month): 7 (December)
Pages: 2790-2810

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Handle: RePEc:aea:aecrev:v:103:y:2013:i:7:p:2790-2810

Note: DOI: 10.1257/aer.103.7.2790
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References

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  1. Burkhard Schipper, 2011. "Awareness-Dependent Subjective Expected Utility," Working Papers 1022, University of California, Davis, Department of Economics.
  2. Modica, Salvatore & Rustichini, Aldo, 1999. "Unawareness and Partitional Information Structures," Games and Economic Behavior, Elsevier, vol. 27(2), pages 265-298, May.
  3. Halpern, Joseph Y. & Rego, Leandro Chaves, 2008. "Interactive unawareness revisited," Games and Economic Behavior, Elsevier, vol. 62(1), pages 232-262, January.
  4. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2006. "Interactive unawareness," Journal of Economic Theory, Elsevier, vol. 130(1), pages 78-94, September.
  5. Halpern, Joseph Y., 2001. "Alternative Semantics for Unawareness," Games and Economic Behavior, Elsevier, vol. 37(2), pages 321-339, November.
  6. Simon Grant & John Quiggin, 2013. "Inductive reasoning about unawareness," Economic Theory, Springer, vol. 54(3), pages 717-755, November.
  7. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 1998. "Standard State-Space Models Preclude Unawareness," Econometrica, Econometric Society, vol. 66(1), pages 159-174, January.
  8. Li, Jing, 2009. "Information structures with unawareness," Journal of Economic Theory, Elsevier, vol. 144(3), pages 977-993, May.
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Citations

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Cited by:
  1. Heinsalu, Sander, 2014. "Universal type structures with unawareness," Games and Economic Behavior, Elsevier, vol. 83(C), pages 255-266.
  2. Ehud Lehrer & Roee Teper, 2014. "Extension Rules or What Would the Sage Do?," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 5-22, February.
  3. Edi Karni & Marie-Louise Vierø, 2014. "Awareness of Unawareness: A Theory of Decision Making in the Face of Ignorance," Working Papers 1322, Queen's University, Department of Economics.
  4. Oliver Walker, 2011. "Unawareness with ‘possible’ possible worlds," Grantham Research Institute on Climate Change and the Environment Working Papers 69, Grantham Research Institute on Climate Change and the Environment.
  5. Quiggin, John, 2013. "The value of information and the value of awareness," Risk and Sustainable Management Group Working Papers 151207, University of Queensland, School of Economics.
  6. Oliver Walker & Simon Dietz, 2011. "A representation result for choice under conscious unawareness," Grantham Research Institute on Climate Change and the Environment Working Papers 59, Grantham Research Institute on Climate Change and the Environment.
  7. Auster, Sarah, 2013. "Asymmetric awareness and moral hazard," Games and Economic Behavior, Elsevier, vol. 82(C), pages 503-521.
  8. Faro, José Heleno & Lefort, Jean Philippe, 2013. "Dynamic Objective and Subjective Rationality," Insper Working Papers wpe_312, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  9. Takashi Hayashi, 2012. "Expanding state space and extension of beliefs," Theory and Decision, Springer, vol. 73(4), pages 591-604, October.

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