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Understanding the nonadditive probability decision model

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  • Mukerji, S.

Abstract

The pioneering research of Schmeidler [19] [20] and others identified behavioral axioms that underlie preferences consistent with the maximization of Choquet expected utility. However, these theories do not clarify the link between the epistemics of the decision maker's (DM) problem and his choice. This paper shows that if the DM is aware that his anticipation and perception of future contingencies is incomplete, then his subjective beliefs will be described by a nonadditive probability specification. Further, if the DM acts with a certain notion of caution given the incompleteness in his understanding of the environment, his preferences over acts may have a Choquet expected utility representation. The model developed here thus provides a justification of such beliefs and preferences based on "procedural rationality". The formalism also allows a simple characterization of how belief representation may change as the DM acquires a clearer picture of the contingency space underlying the uncertain environment.

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Bibliographic Info

Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 9517.

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Date of creation: 01 Jan 1995
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Handle: RePEc:stn:sotoec:9517

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References

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  1. Jurgen A. Doornik & David F. Hendry & Bent Nielsen, 1998. "Inference in Cointegrating Models: UK M1 Revisited," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 533-572, December.
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  4. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
  5. Marcellino, Massimiliano, 1999. "Some Consequences of Temporal Aggregation in Empirical Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 129-36, January.
  6. Johansen, S., 1991. "Determination of Cointegration Rank in the Presence of a Linear Trend," Papers 76a, Helsinki - Department of Economics.
  7. Welfe, Aleksander, 1991. " Modelling Wages in Centrally Planned Economies: The Case of Poland," Economic Change and Restructuring, Springer, vol. 24(1), pages 47-58.
  8. Clements, Michael P. & Mizon, Grayham E., 1991. "Empirical analysis of macroeconomic time series : VAR and structural models," European Economic Review, Elsevier, vol. 35(4), pages 887-917, May.
  9. Christopher Erickson & Andrea Ichino, 1995. "Wage Differentials in Italy: Market Forces, Institutions, and Inflation," NBER Chapters, in: Differences and Changes in Wage Structures, pages 265-306 National Bureau of Economic Research, Inc.
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  11. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107.
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  13. repec:sae:niesru:v:111:y::i:1:p:62-85 is not listed on IDEAS
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Citations

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Cited by:
  1. Mukerji, Sujoy & Tallon, Jean-Marc, 2004. "Ambiguity aversion and the absence of wage indexation," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 653-670, April.
  2. MacLaren, D., 1995. "Uncertainty AVersion and Technical Barriers to Trade: An Australian Example," Department of Economics - Working Papers Series 498, The University of Melbourne.
  3. Marcello Basili & Carlo Zappia, 2005. "Ambiguity and uncertainty in Ellsberg and Shackle," Department of Economics University of Siena 460, Department of Economics, University of Siena.
  4. Vassili Vergopoulos, 2011. "Dynamic consistency for non-expected utility preferences," Economic Theory, Springer, vol. 48(2), pages 493-518, October.
  5. Marie-Louise Vierø, 2009. "Exactly what happens after the Anscombe–Aumann race?," Economic Theory, Springer, vol. 41(2), pages 175-212, November.
  6. Jürgen Eichberger & David Kelsey, 1999. "E-Capacities and the Ellsberg Paradox," Theory and Decision, Springer, vol. 46(2), pages 107-138, April.
  7. Larry Epstein & Massimo Marinacci, 2005. "Coarse Contingencies," RCER Working Papers 515, University of Rochester - Center for Economic Research (RCER).
  8. repec:hal:cesptp:halshs-00451997 is not listed on IDEAS
  9. Roman Kozhan, 2011. "Non-additive anonymous games," International Journal of Game Theory, Springer, vol. 40(2), pages 215-230, May.
  10. Luca Rigotti & Matthew Ryan & Rhema Vaithianathan, 2011. "Optimism and firm formation," Economic Theory, Springer, vol. 46(1), pages 1-38, January.
  11. Spyros Galanis, 2013. "Unawareness of theorems," Economic Theory, Springer, vol. 52(1), pages 41-73, January.
  12. Grant, S. & Quiggin, J., 2001. "A Model-Free Definition of Increasing Uncertainty," Discussion Paper 2001-84, Tilburg University, Center for Economic Research.
  13. Nabil I. Al-Najjar & Luciano De Castro, 2010. "Uncertainty, Efficiency and Incentive Compatibility," Discussion Papers 1532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Adriana Castaldo & Massimo Marinacci, 2001. "Random correspndences as bundles of random variables," ICER Working Papers - Applied Mathematics Series 12-2001, ICER - International Centre for Economic Research.

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