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What do uncertainty-averse decision-makers believe?

Author

Listed:
  • Matthew J. Ryan

    (School of Economics, The Australian National University, Canberra, ACT 0200, AUSTRALIA)

Abstract

This paper introduces the concept of firm belief, which is proposed as a new epistemic model for a wide class of preferences. In particular, firm beliefs are shown to have the following desirable properties: (i) they are derived from preferences according to a plausible rule of epistemic inference; (ii) they satisfy standard logical properties; and (iii) tractable representations of firm belief are available for all (suitably continuous) biseparable preferences [13, 14], including the Choquet expected utility [30] and maxmin expected utility [16] classes. We also use firm belief to construct a generalization of Nash equilibrium for (two-player) normal form games.

Suggested Citation

  • Matthew J. Ryan, 2002. "What do uncertainty-averse decision-makers believe?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(1), pages 47-65.
    • Handle: RePEc:spr:joecth:v:20:y:2002:i:1:p:47-65
    Note: Received: December 14, 1999; revised version: February 26, 2001
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    Citations

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    Cited by:

    1. Grant, Simon & Quiggin, John, 2005. "Increasing uncertainty: a definition," Mathematical Social Sciences, Elsevier, vol. 49(2), pages 117-141, March.
    2. Eichberger, Jürgen & Grant, Simon & Kelsey, David, 2017. "Ambiguity and the Centipede Game: Strategic Uncertainty in Multi-Stage Games," Working Papers 0638, University of Heidelberg, Department of Economics.
    3. Burkhard C. Schipper, 2021. "The evolutionary stability of optimism, pessimism, and complete ignorance," Theory and Decision, Springer, vol. 90(3), pages 417-454, May.
    4. Federica Ceron & Vassili Vergopoulos, 2021. "On stochastic independence under ambiguity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(3), pages 925-960, April.
    5. Philippe Bich, 2016. "Prudent Equilibria and Strategic Uncertainty in Discontinuous Games," Working Papers halshs-01337293, HAL.
    6. Lo, Kin Chung, 2009. "Correlated Nash equilibrium," Journal of Economic Theory, Elsevier, vol. 144(2), pages 722-743, March.
    7. Jürgen Eichberger & David Kelsey, 2014. "Optimism And Pessimism In Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(2), pages 483-505, May.
    8. Bich, Philippe, 2019. "Strategic uncertainty and equilibrium selection in discontinuous games," Journal of Economic Theory, Elsevier, vol. 183(C), pages 786-822.
    9. repec:ebl:ecbull:v:4:y:2006:i:37:p:1-7 is not listed on IDEAS
    10. Lo, Kin Chung, 2011. "Possibility and permissibility," Mathematical Social Sciences, Elsevier, vol. 62(2), pages 109-113, September.
    11. Vassili Vergopoulos, 2011. "Dynamic consistency for non-expected utility preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(2), pages 493-518, October.
    12. Kin Chung Lo, 2006. "A robust definition of possibility for biseparable preferences," Economics Bulletin, AccessEcon, vol. 4(37), pages 1-7.
    13. Dominiak, Adam & Lee, Min Suk, 2017. "Coherent Dempster–Shafer equilibrium and ambiguous signals," Journal of Mathematical Economics, Elsevier, vol. 68(C), pages 42-54.
    14. Eichberger, Jürgen & Kelsey, David, 2007. "Ambiguity," Papers 07-50, Sonderforschungsbreich 504.
    15. Jürgen Eichberger & David Kelsey & Burkhard Schipper, 2008. "Granny Versus Game Theorist: Ambiguity in Experimental Games," Theory and Decision, Springer, vol. 64(2), pages 333-362, March.
    16. Thomas Jungbauer & Klaus Ritzberger, 2011. "Strategic games beyond expected utility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(2), pages 377-398, October.
    17. Craig Webb, 2013. "Bargaining with subjective mixtures," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(1), pages 15-39, January.
    18. repec:awi:wpaper:0448 is not listed on IDEAS
    19. Philippe Bich, 2016. "Prudent Equilibria and Strategic Uncertainty in Discontinuous Games," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01337293, HAL.
    20. Lo, Kin Chung, 2005. "More likely than unlikely," Mathematical Social Sciences, Elsevier, vol. 49(1), pages 39-53, January.
    21. Jürgen Eichberger & David Kelsey & Burkhard Schipper, 2008. "Granny Versus Game Theorist: Ambiguity in Experimental Games," Theory and Decision, Springer, vol. 64(2), pages 333-362, March.
    22. Dominiak, Adam & Eichberger, Jürgen, 2016. "Support notions for belief functions," Economics Letters, Elsevier, vol. 146(C), pages 28-32.
    23. Dominiak, Adam & Eichberger, Jürgen, 2021. "Games in context: Equilibrium under ambiguity for belief functions," Games and Economic Behavior, Elsevier, vol. 128(C), pages 125-159.

    More about this item

    Keywords

    Epistemic foundations of decisions; Biseparable preferences; Normal form games.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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