Coping with ignorance: unforeseen contingencies and non-additive uncertainty
In real-life decision problems, decision makers are never provided with the necessary background structure: the set of states of the world, the outcome space, the set of actions. They have to devise all these by themselves. I model the (static) choice problem of a decision maker (DM) who is aware that her perception of the decision problem is too coarse, as for instance when there might be unforeseen contingencies. I make a "bounded rationality'' assumption on the way the DM deals with this difficulty, and then I show that imposing standard subjective expected utility axioms on her preferences only implies that they can be represented by a (generalized) expectation with respect to a non-additive measure, called a belief function. However, the axioms do have strong implications for how the DM copes with the type of ignorance described above. Finally, I show that some decision rules that have been studied in the literature can be obtained as a special case of the model presented here (though they have to be interpreted differently).
Volume (Year): 17 (2001)
Issue (Month): 2 ()
|Note:||Received: December 16, 1999; revised version: March 22, 2000|
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/economic+theory/journal/199/PS2|
When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:17:y:2001:i:2:p:247-276. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.