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A Theory Of Rational Choice Under Complete Ignorance

Author

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  • Klaus Nehring
  • Massimiliano Marcellino

    (Department of Economics, University of California Davis)

Abstract

This paper contributes to a theory of rational choice under uncertainty for decision-makers whose preferences are exhaustively described by partial orders representing ""limited information."" Specifically, we consider the limiting case of ""Complete Ignorance"" decision problems characterized by maximally incomplete preferences and important primarily as reduced forms of general decision problems under uncertainty. ""Rationality"" is conceptualized in terms of a ""Principle of Preference-Basedness,"" according to which rational choice should be isomorphic to asserted preference. The main result characterizes axiomatically a new choice-rule called ""Simultaneous Expected Utility Maximization"" which in particular satisfies a choice-functional independence and a context-dependent choice-consistency condition; it can be interpreted as the fair agreement in a bargaining game (Kalai-Smorodinsky solution) whose players correspond to the different possible states (respectively extermal priors in the general case).

Suggested Citation

  • Klaus Nehring & Massimiliano Marcellino, 2003. "A Theory Of Rational Choice Under Complete Ignorance," Working Papers 138, University of California, Davis, Department of Economics.
    • Handle: RePEc:cda:wpaper:138
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    File URL: https://repec.dss.ucdavis.edu/files/B7Q8iFPuGCKtNqugJdER7Uds/97-2.pdf
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    References listed on IDEAS

    as
    1. Roth, Alvin E., 1977. "Independence of irrelevant alternatives, and solutions to Nash's bargaining problem," Journal of Economic Theory, Elsevier, vol. 16(2), pages 247-251, December.
    2. Modica, Salvatore & Rustichini, Aldo, 1999. "Unawareness and Partitional Information Structures," Games and Economic Behavior, Elsevier, vol. 27(2), pages 265-298, May.
    3. Nehring, Klaus & Puppe, Clemens, 1996. "Continuous Extensions of an Order on a Set to the Power Set," Journal of Economic Theory, Elsevier, vol. 68(2), pages 456-479, February.
    4. Kalai, Ehud & Smorodinsky, Meir, 1975. "Other Solutions to Nash's Bargaining Problem," Econometrica, Econometric Society, vol. 43(3), pages 513-518, May.
    5. Nehring, K., 1993. "A Theory of Rational Decision with Incomplete Information," Papers 93-25, California Davis - Institute of Governmental Affairs.
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