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On Machina’s paradoxes and limited attention

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  • Anastasia Burkovskaya

    (The University of Sydney)

Abstract

Limited attention and similarity of some of the states of the world together may nudge an agent to perceive the “grand world” as a collection of “small worlds”. We use this idea as an explanation for some of the ambiguity paradoxes posed by Machina (Am Econ Rev 99(1):385–392, 2009; Am Econ Rev 104(12):3814–3840, 2014) as a challenge to the prominent ambiguity theories. In addition, we propose a measure of rationality based on a number of potential violations of preference for the first-order stochastic dominance. We use this measure to explore how departures from perfect attention can be improved through changes to the structure of the “small worlds”.

Suggested Citation

  • Anastasia Burkovskaya, 2020. "On Machina’s paradoxes and limited attention," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(2), pages 231-244, October.
    • Handle: RePEc:spr:etbull:v:8:y:2020:i:2:d:10.1007_s40505-019-00179-z
    DOI: 10.1007/s40505-019-00179-z
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    References listed on IDEAS

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    Cited by:

    1. Anastasia Burkovskaya & Adam Teperski & Kadir Atalay, 2022. "Framing and insurance choices," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(2), pages 311-337, June.

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    More about this item

    Keywords

    Limited attention; Ambiguity paradoxes; Uncertainty; State aggregation; FOSD violations;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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