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Subjective Probability without Monotonicity: Or How Machina's Mom May Also Be Probabilistically Sophisticated

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  • Grant, Simon

Abstract

If an agent's preferences over subjectively uncertain acts are consistent with him having a subjective probability distribution over the states of nature, then those preferences can induce consistent preferences over 'objectively' risky lotteries. Such 'probabilistically sophisticated' behavior allows us to treat decision making under uncertainty as though it is under risk. This paper first characterizes exactly what probabilistic sophistication entails for an agent's beliefs about the likelihood of states of nature. Secondly, it presents characterizations of probabilistically sophisticated individuals whose induced lottery preferences obey neither the independence axiom nor a monotonicity property that is shown to share some of the nature of independence. Copyright 1995 by The Econometric Society.

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  • Grant, Simon, 1995. "Subjective Probability without Monotonicity: Or How Machina's Mom May Also Be Probabilistically Sophisticated," Econometrica, Econometric Society, vol. 63(1), pages 159-189, January.
  • Handle: RePEc:ecm:emetrp:v:63:y:1995:i:1:p:159-89
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    Cited by:

    1. Fleurbaey, Marc, 2009. "Two variants of Harsanyi's aggregation theorem," Economics Letters, Elsevier, vol. 105(3), pages 300-302, December.
    2. Cerreia-Vioglio, Simone & Maccheroni, Fabio & Marinacci, Massimo & Montrucchio, Luigi, 2012. "Probabilistic sophistication, second order stochastic dominance and uncertainty aversion," Journal of Mathematical Economics, Elsevier, vol. 48(5), pages 271-283.
    3. Massimo Marinacci, 2002. "Probabilistic Sophistication and Multiple Priors," Econometrica, Econometric Society, vol. 70(2), pages 755-764, March.
    4. SPRUMONT, Yves, 2009. "Relative Egalitarianism and Related Criteria," Cahiers de recherche 2009-02, Universite de Montreal, Departement de sciences economiques.
    5. Fleurbaey, Marc & Gajdos, Thibault & Zuber, Stéphane, 2015. "Social rationality, separability, and equity under uncertainty," Mathematical Social Sciences, Elsevier, vol. 73(C), pages 13-22.
    6. Tomasz, Strzalecki, 2011. "Probabilistic sophistication and variational preferences," Journal of Economic Theory, Elsevier, vol. 146(5), pages 2117-2125, September.
    7. Kopylov, Igor, 2010. "Unbounded probabilistic sophistication," Mathematical Social Sciences, Elsevier, vol. 60(2), pages 113-118, September.
    8. Marc Fleurbaey & Stéphane Zuber, 2013. "Inequality aversion and separability in social risk evaluation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(3), pages 675-692, November.
    9. Marc Fleurbaey, 2010. "Assessing Risky Social Situations," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 649-680, August.
    10. Grant, Simon & Kajii, Atsushi & Polak, Ben, 2000. "Decomposable Choice under Uncertainty," Journal of Economic Theory, Elsevier, vol. 92(2), pages 169-197, June.
    11. Chew, Soo Hong & Sagi, Jacob S., 2012. "An inequality measure for stochastic allocations," Journal of Economic Theory, Elsevier, vol. 147(4), pages 1517-1544.
    12. Constantinos Antoniou & Glenn Harrison & Morten Lau & Daniel Read, 2015. "Subjective Bayesian beliefs," Journal of Risk and Uncertainty, Springer, vol. 50(1), pages 35-54, February.
    13. Chew, Soo Hong & Sagi, Jacob S., 2008. "Small worlds: Modeling attitudes toward sources of uncertainty," Journal of Economic Theory, Elsevier, vol. 139(1), pages 1-24, March.
    14. Edi Karni, 2005. "A New Approach to Modeling Decision-Making under Uncertainty and Defining Subjective Probabilities," Economics Working Paper Archive 519, The Johns Hopkins University,Department of Economics.
    15. Skiadas, Costis, 1997. "Subjective Probability under Additive Aggregation of Conditional Preferences," Journal of Economic Theory, Elsevier, vol. 76(2), pages 242-271, October.
    16. Kopylov, Igor, 2007. "Subjective probabilities on "small" domains," Journal of Economic Theory, Elsevier, vol. 133(1), pages 236-265, March.
    17. Sergio Almeida & Marcos Rangel, 2016. "Probabilistic Sophistication, Sources Of Uncertainty, And Cognitive Ability: Experimental Evidence," Anais do XLII Encontro Nacional de Economia [Proceedings of the 42ndd Brazilian Economics Meeting] 131, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    18. Simon Grant & Atsushi Kajii, 2005. "Probabilistically Sophisticated Multiple Priors," KIER Working Papers 608, Kyoto University, Institute of Economic Research.
    19. Klaus Nehring, 2006. "Decision-Making in the Context of Imprecise Probabilistic Beliefs," Economics Working Papers 0034, Institute for Advanced Study, School of Social Science.
    20. Grant, Simon & Karni, Edi, 2004. "A theory of quantifiable beliefs," Journal of Mathematical Economics, Elsevier, vol. 40(5), pages 515-546, August.

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