We develop a model of undescribable events. Examples of events that are well understood by economic agents but are prohibitively difficult to describe in advance abound in real-life. This notion has also pervaded a substantial amount of economic literature. We put forth a model of such events using a simple co-insurance problem as backdrop. Undescribable events in our model are understood by economic agents --- their consequences and probabilities are known --- but are such that every finite description of such events necessarily leaves out relevant features that have a non-negligible impact on the parties' expected utilities. We also show that two key ingredients of our model --- probabilities that are finitely additive but fail countable additivity, and a state space that is small (discrete in our model) in a measure-theoretic sense --- are necessary ingredients of any model of undescribable events that delivers our results.
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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number
gueconwpa~03-03-28.
Length: Date of creation: Date of revision: Handle: RePEc:geo:guwopa:gueconwpa~03-03-28
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Find related papers by JEL classification: C69 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Other D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
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Luca Anderlini & Leonardo Felli, .
""Costly Coasian Contracts'',"
CARESS Working Papres
97-11, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
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