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Relevance and Symmetry

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Author Info

  • Sujoy Mukerji
  • Peter Klibanoff and Kyoungwon Seo

Abstract

We define a behavioral concept of relevance in the context of decision making under uncertainty.  We argue that this concept provides a sensible answer to the question "What probabilistic environments do an individuals' preferences reveal as mattering to her decisions?" under a symmetry assumption.  This question has important implications for economic modeling.  It is often the case that a modeler desires to restrict the probabilistic environments a decision maker considers.  Without a concept of relevant beliefs, it is impossible to check from preferences whether a model is reflecting what the modeler intended.  This checking is essential to isolating the effect of changing information while holding tastes fixed.  We show that a single concept of relevance delivers this for a wide range of models, including models that allow for ambiguity attitude.  We also use symmetry and relevance to provide insight into the foundations of the α-MEU and smooth ambiguity models of decision-making under uncertainty.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 539.

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Date of creation: 01 Feb 2011
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Handle: RePEc:oxf:wpaper:539

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Related research

Keywords: Symmetry; Beliefs; Ambiguity; Comparative statics of information;

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References

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  1. Juan Dubra & Fabio Maccheroni & Efe Oki, 2001. "Expected utility theory without the completeness axiom," ICER Working Papers - Applied Mathematics Series, ICER - International Centre for Economic Research 11-2001, ICER - International Centre for Economic Research.
  2. Thibault Gajdos & Jean-Marc Tallon & Jean-Christophe Vergnaud, 2002. "Decision Making with Imprecise Probabilistic Information," ICER Working Papers - Applied Mathematics Series, ICER - International Centre for Economic Research 18-2003, ICER - International Centre for Economic Research, revised May 2003.
  3. Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. "Ambiguity and Robust Statistics," Working Papers 382, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. Itzhak Gilboa & Fabio Maccheroni & Massimo Marinacci & David Schmeidler, 2008. "Objective and Subjective Rationality in a Multiple Prior Model," Carlo Alberto Notebooks, Collegio Carlo Alberto 73, Collegio Carlo Alberto, revised 2008.
  5. Jürgen Eichberger & Simon Grant & David Kelsey, 2008. "Differentiating ambiguity: an expository note," Economic Theory, Springer, Springer, vol. 36(2), pages 327-336, August.
  6. Robert F. Nau, 2006. "Uncertainty Aversion with Second-Order Utilities and Probabilities," Management Science, INFORMS, INFORMS, vol. 52(1), pages 136-145, January.
  7. Gajdos, T. & Hayashi, T. & Tallon, J.-M. & Vergnaud, J.-C., 2008. "Attitude toward imprecise information," Journal of Economic Theory, Elsevier, Elsevier, vol. 140(1), pages 27-65, May.
  8. Tapking, Jens, 2004. "Axioms for preferences revealing subjective uncertainty and uncertainty aversion," Journal of Mathematical Economics, Elsevier, vol. 40(7), pages 771-797, November.
  9. David S. Ahn, 2008. "Ambiguity Without a State Space," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 3-28.
  10. Wojciech Olszewski, 2007. "Preferences Over Sets of Lotteries -super-1," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 567-595.
  11. Alain Chateauneuf & Fabio Maccheroni & Massimo Marinacci & Jean-Marc Tallon, 2005. "Monotone continuous multiple priors," Economic Theory, Springer, Springer, vol. 26(4), pages 973-982, November.
  12. Chew Soo Hong & Jacob S. Sagi, 2006. "Event Exchangeability: Probabilistic Sophistication Without Continuity or Monotonicity," Econometrica, Econometric Society, Econometric Society, vol. 74(3), pages 771-786, 05.
  13. Klibanoff, Peter & Marinacci, Massimo & Mukerji, Sujoy, 2009. "Recursive smooth ambiguity preferences," Journal of Economic Theory, Elsevier, Elsevier, vol. 144(3), pages 930-976, May.
  14. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
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Cited by:
  1. Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. "Ambiguity and Robust Statistics," Working Papers 382, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. "Classical Subjective Expected Utility," Working Papers 400, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Jürgen Eichberger & Simon Grant & David Kelsey, 2012. "When is ambiguity–attitude constant?," Journal of Risk and Uncertainty, Springer, Springer, vol. 45(3), pages 239-263, December.
  4. repec:bos:wpaper:wp2013-001 is not listed on IDEAS
  5. Epstein, Larry G. & Halevy, Yoram, 2014. "No Two Experiments are Identical," Microeconomics.ca working papers, Vancouver School of Economics yoram_halevy-2014-9, Vancouver School of Economics, revised 04 Aug 2014.

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