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A Note on Unawareness and Zero Probability

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  • Jing Li

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    (Department of Economics, University of Pennsylvania)

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    Abstract

    I study how choice behavior given unawareness of an event differs from choice behavior given subjective belief of zero probability on that event. Depending on different types of unawareness the decision-maker suffers, behavior under unawareness is either incomparable with that under zero probability (in the case of pure unawareness), or drastically different (in the case of partial unawareness). The key differences are (1) partial unawareness permits dynamically inconsistent choice, while zero probability beliefs do not; and (2) there are unforeseen options in an unawareness environment that are necessarily modeled as dominated options in zero probability models.

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    File URL: http://economics.sas.upenn.edu/system/files/working-papers/08-022.pdf
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    Bibliographic Info

    Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 08-022.

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    Length: 18 pages
    Date of creation: 02 Jan 2008
    Date of revision:
    Handle: RePEc:pen:papers:08-022

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    Related research

    Keywords: unawareness; zero probability; dynamic consistency; unforeseen contingency; unforeseen options;

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    Cited by:
    1. Burkhard Schipper, 2013. "Awareness-dependent subjective expected utility," International Journal of Game Theory, Springer, vol. 42(3), pages 725-753, August.
    2. Auster, Sarah, 2013. "Asymmetric awareness and moral hazard," Games and Economic Behavior, Elsevier, vol. 82(C), pages 503-521.
    3. Sarah Auster, 2012. "Asymmetric Awareness and Moral Hazard," Economics Working Papers ECO2012/23, European University Institute.
    4. Aviad Heifetz & Martin Meier & Burkhard C. Schipper, 2009. "Unawareness, Beliefs and Speculative Trade," Working Papers 920, University of California, Davis, Department of Economics.
    5. Schipper, Burkhard C, 2010. "Revealed Unawareness," MPRA Paper 21491, University Library of Munich, Germany.
    6. Schipper, Burkhard C, 2011. "Preference-Based Unawareness," MPRA Paper 30221, University Library of Munich, Germany.

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