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Understanding the nonadditive probability decision model (*)

  • Sujoy Mukerji

    (Department of Economics, University of Southampton, Highfield, Southampton S017 1BJ, UK e-mail:sm5Gsoton.ac.uk)

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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Article provided by Springer in its journal Economic Theory.

Volume (Year): 9 (1996)
Issue (Month): 1 ()
Pages: 23-46

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Handle: RePEc:spr:joecth:v:9:y:1996:i:1:p:23-46
Note: Received: April 6, 1995; revised version November 27, 1995
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  1. 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.
  2. 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.
  3. Roberto Golinelli & Renzo Orsi, 1996. "Exchange rate Inflation and Unemployment in East European Economies: the Case of Poland and Hungary," Working Papers 265, Dipartimento Scienze Economiche, Universita' di Bologna.
  4. 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.
  5. Massimiliano Marcellino & Grayham E. Mizon, 2000. "Wages, Prices, Productivity, Inflation and Unemployment in Italy 1970-1994," Econometric Society World Congress 2000 Contributed Papers 0911, Econometric Society.
  6. Roberto Golinelli & Renzo Orsi, 1994. "Price-Wage Dynamics is A Transition Economy: The Case of Poland," Working Papers 192, Dipartimento Scienze Economiche, Universita' di Bologna.
  7. 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.
  8. Johansen, S., 1991. "Determination of Cointegration Rank in the Presence of a Linear Trend," Papers 76a, Helsinki - Department of Economics.
  9. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  10. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
  11. repec:sae:niesru:v:111:y::i:1:p:62-85 is not listed on IDEAS
  12. Welfe, Aleksander, 1991. " Modelling Wages in Centrally Planned Economies: The Case of Poland," Economic Change and Restructuring, Springer, vol. 24(1), pages 47-58.
  13. Bontemps, Christophe & Mizon, Grayham E., 2001. "Congruence and encompassing," Discussion Paper Series In Economics And Econometrics 0107, Economics Division, School of Social Sciences, University of Southampton.
  14. 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.
  15. Welfe, Aleksander, 1996. " The Price-Wage Inflationary Spiral in Poland," Economic Change and Restructuring, Springer, vol. 29(1), pages 33-50.
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