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

  • Edi Karni
  • Marie-Louise Vier?

This article 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 events that have the flavor of "reverse Bayesianism."

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.103.7.2790
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File URL: http://www.aeaweb.org/aer/ds/dec2013/20120329_ds.zip
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 103 (2013)
Issue (Month): 7 (December)
Pages: 2790-2810

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Handle: RePEc:aea:aecrev:v:103:y:2013:i:7:p:2790-2810
Note: DOI: 10.1257/aer.103.7.2790
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  1. 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).
  2. Joseph Y. Halpern, 2000. "Alternative Semantics for Unawareness," Game Theory and Information 0004010, EconWPA.
  3. Burkhard Schipper, 2013. "Awareness-dependent subjective expected utility," International Journal of Game Theory, Springer, vol. 42(3), pages 725-753, August.
  4. Li, Jing, 2009. "Information structures with unawareness," Journal of Economic Theory, Elsevier, vol. 144(3), pages 977-993, May.
  5. Modica, Salvatore & Rustichini, Aldo, 1999. "Unawareness and Partitional Information Structures," Games and Economic Behavior, Elsevier, vol. 27(2), pages 265-298, May.
  6. Grant, Simon & Quiggin, John, 2009. "Inductive Reasoning About Unwareness," Risk and Sustainable Management Group Working Papers 151188, University of Queensland, School of Economics.
  7. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 1998. "Standard State-Space Models Preclude Unawareness," Econometrica, Econometric Society, vol. 66(1), pages 159-174, January.
  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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