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

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Author Info

  • Edi Karni

    ()
    (Johns Hopkins University)

  • Marie-Louise Vierø

    ()
    (Queen's University)

Abstract

This paper introduces a new approach to modeling the expanding universe of decision makers in the wake of growing awareness, and invokes the axiomatic approach to model the evolution of decision makers' beliefs as awareness grows. The expanding universe is accompanied by extension of the set of acts, the preference relations over which are linked by a new axiom, invariant risk preferences, asserting that the ranking of lotteries is independent of the set of acts under consideration. The main results are representation theorems and rules for updating beliefs over expanding state spaces and null events that have the flavor of "reverse Bayesianism."

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1258.pdf
File Function: First version 2010
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1258.

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Length: 26 pages
Date of creation: Dec 2010
Date of revision:
Publication status: Forthcoming in American Economic Review
Handle: RePEc:qed:wpaper:1258

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Keywords: Awareness; unawareness; reverse Bayesianism; null events;

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References

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  1. Modica, Salvatore & Rustichini, Aldo, 1999. "Unawareness and Partitional Information Structures," Games and Economic Behavior, Elsevier, vol. 27(2), pages 265-298, May.
  2. Halpern, Joseph Y., 2001. "Alternative Semantics for Unawareness," Games and Economic Behavior, Elsevier, vol. 37(2), pages 321-339, November.
  3. HEIFETZ, Aviad & MEIER, Martin & SCHIPPER, Burkhard C., 2004. "Interactive unawareness," CORE Discussion Papers 2004059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Grant, Simon & Quiggin, John, 2009. "Inductive Reasoning About Unwareness," Risk and Sustainable Management Group Working Papers 151188, University of Queensland, School of Economics.
  5. Burkhard Schipper, 2011. "Awareness-Dependent Subjective Expected Utility," Working Papers 1022, University of California, Davis, Department of Economics.
  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. Li, Jing, 2009. "Information structures with unawareness," Journal of Economic Theory, Elsevier, vol. 144(3), pages 977-993, May.
  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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Citations

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Cited by:
  1. 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.
  2. Auster, Sarah, 2013. "Asymmetric awareness and moral hazard," Games and Economic Behavior, Elsevier, vol. 82(C), pages 503-521.
  3. 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.
  4. Heinsalu, Sander, 2014. "Universal type structures with unawareness," Games and Economic Behavior, Elsevier, vol. 83(C), pages 255-266.
  5. 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.
  6. 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.
  7. 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.
  8. 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.

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