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Understanding the nonadditive probability decision model (*)

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Author Info
Sujoy Mukerji (Department of Economics, University of Southampton, Highfield, Southampton S017 1BJ, UK e-mail:sm5Gsoton.ac.uk)

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Abstract

The pioneering research of Schmeidler [19] [20] and others identified behavioral axioms that underlie preferences consistent with the maximization of Choquet expected utility. However, these theories do not clarify the link between the epistemics of the decision maker's (DM) problem and his choice. This paper shows that if the DM is aware that his anticipation and perception of future contingencies is incomplete, then his subjective beliefs will be described by a nonadditive probability specification. Further, if the DM acts with a certain notion of caution given the incompleteness in his understanding of the environment, his preferences over acts may have a Choquet expected utility representation. The model developed here thus provides a justification of such beliefs and preferences based on "procedural rationality". The formalism also allows a simple characterization of how belief representation may change as the DM acquires a clearer picture of the contingency space underlying the uncertain environment.

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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 9 (1996)
Issue (Month): 1 ()
Pages: 23-46
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Handle: RePEc:spr:joecth:v:9:y:1996:i:1:p:23-46

Note: Received: April 6, 1995; revised version November 27, 1995
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  1. Sujoy Mukerji & Jean-Marc Tallon, 2000. "Ambiguity Aversion and Incompleteness of Financial Markets," Economics Series Working Papers 046, University of Oxford, Department of Economics. [Downloadable!]
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  2. Bailey, Ralph W. & Eichberger, Jürgen & Kelsey, David, 2004. "Ambiguity and Public Good Provision in Large Societies," Sonderforschungsbereich 504 Publications 04-54, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
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  3. Adriana Castaldo & Massimo Marinacci, 2001. "Random correspndences as bundles of random variables," ICER Working Papers - Applied Mathematics Series 12-2001, ICER - International Centre for Economic Research. [Downloadable!]
  4. Grant, S. & Quiggin, J., 2001. "A model-free definition of increasing uncertainty," Discussion Paper 84, Tilburg University, Center for Economic Research. [Downloadable!]
  5. Luca Rigotti & Matthew Ryan & Rema Vaithianathan, 2001. "Entrepreneurial Innovation," Department of Economics, Working Paper Series 1016, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  6. Larry Epstein & Massimo Marinacci, 2005. "Coarse Contingencies," RCER Working Papers 515, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
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  7. MacLaren, Donald, 1997. "Uncertainty Aversion and Technical Barriers to Trade: An Australian Example," 1995: Understanding Technical Barriers to Agricultural Trade Conference, December 1995, Tucson, Arizona 51388, International Agricultural Trade Research Consortium. [Downloadable!]
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  8. Sujoy Mukerji & Jean-Marc Tallon, 2002. "Ambiguity Aversion and the Absence of Wage Indexation," Economics Series Working Papers 111, University of Oxford, Department of Economics. [Downloadable!]
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  9. Marie-Louise Vierø, 2009. "Exactly what happens after the Anscombe–Aumann race?," Economic Theory, Springer, vol. 41(2), pages 175-212, November. [Downloadable!] (restricted)
  10. Eichberger, Jürgen & Kelsey, David, 2003. "Sequential Two-Player Games with Ambiguity," Sonderforschungsbereich 504 Publications 03-27, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
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  11. Marcello Basili & Carlo Zappia, 2005. "Ambiguity and uncertainty in Ellsberg and Shackle," Department of Economics University of Siena 460, Department of Economics, University of Siena. [Downloadable!]
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