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"Reverse Bayesianism": A Choice-Based Theory of Growing Awareness

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  • Edi Karni
  • Marie-Louise Vier�

Abstract

This paper invokes the axiomatic approach to explore the notion of growing awareness in the context of decision making under uncertainty. It introduces a new approach to modeling the expanding universe of a decision maker in the wake of becoming aware of new consequences, new acts, and new links between acts and consequences. New consequences or new acts represent genuine expansions of the decision maker's universe, while the discovery of new links between acts and consequences renders nonnull events that were considered null before the discovery. The expanding universe, or state space, is accompanied by extension of the set of acts. The preference relations over the expanding sets of acts are linked by a new axiom, dubbed act independence, which is motivated by the idea that decision makers have unchanging preferences over the satisfaction of basic needs. The main results are representation theorems and corresponding rules for updating beliefs over expanding state spaces and null events that have the flavor of "reverse Bayesianism".

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Bibliographic Info

Paper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 591.

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Date of creation: Mar 2012
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Handle: RePEc:jhu:papers:591

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References

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  1. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2006. "Interactive unawareness," Journal of Economic Theory, Elsevier, vol. 130(1), pages 78-94, September.
  2. Halpern, Joseph Y., 2001. "Alternative Semantics for Unawareness," Games and Economic Behavior, Elsevier, vol. 37(2), pages 321-339, November.
  3. Simon Grant & John Quiggin, 2013. "Inductive reasoning about unawareness," Economic Theory, Springer, vol. 54(3), pages 717-755, November.
  4. Modica, Salvatore & Rustichini, Aldo, 1999. "Unawareness and Partitional Information Structures," Games and Economic Behavior, Elsevier, vol. 27(2), pages 265-298, May.
  5. Li, Jing, 2009. "Information structures with unawareness," Journal of Economic Theory, Elsevier, vol. 144(3), pages 977-993, May.
  6. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 1998. "Standard State-Space Models Preclude Unawareness," Econometrica, Econometric Society, vol. 66(1), pages 159-174, January.
  7. Burkhard Schipper, 2011. "Awareness-Dependent Subjective Expected Utility," Working Papers 1022, University of California, Davis, Department of Economics.
  8. Halpern, Joseph Y. & Rego, Leandro Chaves, 2008. "Interactive unawareness revisited," Games and Economic Behavior, Elsevier, vol. 62(1), pages 232-262, January.
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Cited by:
  1. Quiggin, John, 2013. "The value of information and the value of awareness," Risk and Sustainable Management Group Working Papers 151207, University of Queensland, School of Economics.
  2. Auster, Sarah, 2013. "Asymmetric awareness and moral hazard," Games and Economic Behavior, Elsevier, vol. 82(C), pages 503-521.
  3. Oliver Walker & Simon Dietz, 2011. "A representation result for choice under conscious unawareness," Grantham Research Institute on Climate Change and the Environment Working Papers 59, Grantham Research Institute on Climate Change and the Environment.
  4. Ehud Lehrer & Roee Teper, 2014. "Extension Rules or What Would the Sage Do?," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 5-22, February.
  5. Edi Karni & Marie-Louise Vierø, 2014. "Awareness of Unawareness: A Theory of Decision Making in the Face of Ignorance," Working Papers 1322, Queen's University, Department of Economics.
  6. Takashi Hayashi, 2012. "Expanding state space and extension of beliefs," Theory and Decision, Springer, vol. 73(4), pages 591-604, October.
  7. Heinsalu, Sander, 2014. "Universal type structures with unawareness," Games and Economic Behavior, Elsevier, vol. 83(C), pages 255-266.
  8. Oliver Walker, 2011. "Unawareness with ‘possible’ possible worlds," Grantham Research Institute on Climate Change and the Environment Working Papers 69, Grantham Research Institute on Climate Change and the Environment.
  9. Faro, José Heleno & Lefort, Jean Philippe, 2013. "Dynamic Objective and Subjective Rationality," Insper Working Papers wpe_312, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.

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