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Belief consistency and invariant risk preferences

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  • Dominiak, Adam
  • Tserenjigmid, Gerelt

Abstract

Karni and Vierø (2013) introduce a novel theory characterizing the evolution of decision makers’ beliefs in response to growing awareness of new conceivable contingencies. As awareness grows, the original subjective expected utility (SEU) preferences need to be reformulated. Under two key axioms linking the original and new preferences, Invariant Risk Preferences and Consistency, the authors derive representation theorems and updating rules for beliefs referred to as reverse Bayesianism. We prove that their Consistency axiom together with the SEU axioms implies Invariant Risk Preferences. In other words, we show that the theory of reverse Bayesianism can be behaviorally underpinned without directly imposing Invariant Risk Preferences.

Suggested Citation

  • Dominiak, Adam & Tserenjigmid, Gerelt, 2018. "Belief consistency and invariant risk preferences," Journal of Mathematical Economics, Elsevier, vol. 79(C), pages 157-162.
    • Handle: RePEc:eee:mateco:v:79:y:2018:i:c:p:157-162
    DOI: 10.1016/j.jmateco.2018.03.005
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    References listed on IDEAS

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    1. Machina Mark J. & Schmeidler David, 1995. "Bayes without Bernoulli: Simple Conditions for Probabilistically Sophisticated Choice," Journal of Economic Theory, Elsevier, vol. 67(1), pages 106-128, October.
    2. Wenjun Ma & Burkhard C. Schipper, 2017. "Does exposure to unawareness affect risk preferences? A preliminary result," Theory and Decision, Springer, vol. 83(2), pages 245-257, August.
    3. Anonymous, 2014. "Introduction to the Issue," Journal of Wine Economics, Cambridge University Press, vol. 9(1), pages 1-2, May.
    4. Burkhard Schipper, 2013. "Awareness-dependent subjective expected utility," International Journal of Game Theory, Springer;Game Theory Society, vol. 42(3), pages 725-753, August.
    5. Karni, Edi & Vierø, Marie-Louise, 2017. "Awareness of unawareness: A theory of decision making in the face of ignorance," Journal of Economic Theory, Elsevier, vol. 168(C), pages 301-328.
    6. Wenjun Ma & Burkhard C. Schipper, 2017. "Does exposure to unawareness affect risk preferences? A preliminary result," Theory and Decision, Springer, vol. 83(2), pages 245-257, August.
    7. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    8. Machina, Mark J & Schmeidler, David, 1992. "A More Robust Definition of Subjective Probability," Econometrica, Econometric Society, vol. 60(4), pages 745-780, July.
    9. Edi Karni & Marie-Louise Vier?, 2013. ""Reverse Bayesianism": A Choice-Based Theory of Growing Awareness," American Economic Review, American Economic Association, vol. 103(7), pages 2790-2810, December.
    10. Burkhard Schipper, 2014. "Unawareness - A Gentle Introduction to both the Literature and the Special Issue," Working Papers 153, University of California, Davis, Department of Economics.
    11. Edi Karni & Marie-Louise Vierø, 2015. "Probabilistic sophistication and reverse Bayesianism," Journal of Risk and Uncertainty, Springer, vol. 50(3), pages 189-208, June.
    12. Anonymous, 2014. "Introduction to the Issue," Journal of Wine Economics, Cambridge University Press, vol. 9(2), pages 109-110, August.
    13. Burkhard Schipper, 2014. "Unawareness - A Gentle Introduction to both the Literature and the Special Issue," Working Papers 145, University of California, Davis, Department of Economics.
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    Cited by:

    1. Vierø, Marie-Louise, 2021. "An intertemporal model of growing awareness," Journal of Economic Theory, Elsevier, vol. 197(C).
    2. Chakravarty, Surajeet & Kelsey, David & Teitelbaum, Joshua C., 2022. "Reverse Bayesianism and act independence," Journal of Economic Theory, Elsevier, vol. 203(C).
    3. Adam Dominiak & Ani Guerdjikova, 2021. "Pessimism and optimism towards new discoveries," Theory and Decision, Springer, vol. 90(3), pages 321-370, May.
    4. Gaia Belardinelli & Burkhard C. Schipper, 2023. "Implicit Knowledge in Unawareness Structures," Working Papers 360, University of California, Davis, Department of Economics.
    5. Dominiak, Adam & Tserenjigmid, Gerelt, 2022. "Ambiguity under growing awareness," Journal of Economic Theory, Elsevier, vol. 199(C).
    6. Araujo, Felipe A. & Piermont, Evan, 2023. "Unawareness and risk taking: The role of context," Journal of Economic Behavior & Organization, Elsevier, vol. 208(C), pages 61-79.

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