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A behavioral definition of unforeseen contingencies

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  • Kochov, Asen

Abstract

The paper proposes a choice-theoretic definition of an unforeseen event and a model of behavior that accommodates such events. The analysis presumes an individual who is aware of their unawareness, which explains why all unforeseen events in this paper are non-null. Relative to existing work, the main contribution is to establish a distinction between unforeseen events and events whose likelihood is ambiguous. This is achieved by adopting a dynamic choice setting.

Suggested Citation

  • Kochov, Asen, 2018. "A behavioral definition of unforeseen contingencies," Journal of Economic Theory, Elsevier, vol. 175(C), pages 265-290.
    • Handle: RePEc:eee:jetheo:v:175:y:2018:i:c:p:265-290
    DOI: 10.1016/j.jet.2018.01.018
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    References listed on IDEAS

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    Cited by:

    1. Scott Condie & Lars Stentoft & Marie-Louise Vierø, 2023. "Unawareness Premia," Economics Working Papers 2023-09, Department of Economics and Business Economics, Aarhus University.
    2. Minardi, Stefania & Savochkin, Andrei, 2019. "Subjective contingencies and limited Bayesian updating," Journal of Economic Theory, Elsevier, vol. 183(C), pages 1-45.
    3. Marie-Louise Vierø, 2022. "Lost in objective translation: Awareness of unawareness when unknowns are not simply unknowns," Economics Working Papers 2022-06, Department of Economics and Business Economics, Aarhus University.
    4. Grant Simon & Guerdjikova Ani & Quiggin John, 2021. "Ambiguity and Awareness: A Coherent Multiple Priors Model," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 21(2), pages 571-612, June.
    5. Sarah Auster & Jeremy Kettering & Asen Kochov, 2021. "Sequential Trading With Coarse Contingencies," CRC TR 224 Discussion Paper Series crctr224_2021_254, University of Bonn and University of Mannheim, Germany.
    6. Adam Dominiak & Ani Guerdjikova, 2021. "Pessimism and optimism towards new discoveries," Theory and Decision, Springer, vol. 90(3), pages 321-370, May.
    7. Saponara, Nick, 2022. "Revealed reasoning," Journal of Economic Theory, Elsevier, vol. 199(C).
    8. Vierø, Marie-Louise, 2021. "An intertemporal model of growing awareness," Journal of Economic Theory, Elsevier, vol. 197(C).
    9. Simon Grant & Idione Meneghel & Rabee Tourky, 2022. "Learning under unawareness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(2), pages 447-475, September.
    10. Andrew Ellis & Michele Piccione, 2017. "Correlation Misperception in Choice," American Economic Review, American Economic Association, vol. 107(4), pages 1264-1292, April.
    11. Anastasia Burkovskaya, 2022. "A model of state aggregation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(1), pages 121-149, February.
    12. Chollete, Lorán & Jaffee, Dwight & Mamun, Khawaja A., 2022. "Policy suggestions from a simple framework with extreme outcomes," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 374-398.
    13. Burkhard C. Schipper, 2024. "Predicting the Unpredictable under Subjective Expected Utility," Papers 2403.01421, arXiv.org.
    14. Simon Dietz & Falk Niehörster, 2021. "Pricing ambiguity in catastrophe risk insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 46(2), pages 112-132, September.
    15. Fukuda, Satoshi, 2021. "Unawareness without AU Introspection," Journal of Mathematical Economics, Elsevier, vol. 94(C).
    16. Áron Tóbiás, 2023. "Cognitive limits and preferences for information," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 46(1), pages 221-253, June.
    17. Evan Piermont & Peio Zuazo-Garin, 2020. "Failures of Contingent Thinking," Papers 2007.07703, arXiv.org, revised Jul 2023.
    18. Lorán Chollete & Sharon G. Harrison, 2021. "Unintended Consequences: Ambiguity Neglect and Policy Ineffectiveness," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 47(2), pages 206-226, April.
    19. Andrew Ellis & Heidi Christina Thysen, 2021. "Subjective Causality in Choice," Papers 2106.05957, arXiv.org, revised Dec 2022.

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    More about this item

    Keywords

    Dynamic choice; Unforeseen events; Ambiguity aversion;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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