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Awareness-Dependent Subjective Expected Utility

Author

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  • Burkhard Schipper

    (Department of Economics, University of California Davis)

Abstract

We develop awareness-dependent subjective expected utility by taking unawareness structures introduced in Heifetz, Meier, and Schipper (2006, 2008, 2011a) as primitives in the Anscombe-Aumann approach to subjective expected utility. We observe that a decision maker is unaware of an event if and only if her choices reveal that the event is ``null'' and the negation of the event is ``null''. Moreover, we characterize ``impersonal'' expected utility that is behaviorally indistinguishable from awareness-dependent subject expected utility and assigns probability zero to some subsets of states that are not necessarily events. We discuss in what sense probability zero can model unawareness.

Suggested Citation

  • Burkhard Schipper, 2011. "Awareness-Dependent Subjective Expected Utility," Working Papers 1022, University of California, Davis, Department of Economics.
  • Handle: RePEc:cda:wpaper:10-22
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    File URL: http://wp.econ.ucdavis.edu/10-22.pdf
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    References listed on IDEAS

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    1. Spyros Galanis, 2013. "Unawareness of theorems," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(1), pages 41-73, January.
    2. Martin Meier & Burkhard C. Schipper, 2014. "Speculative trade under unawareness: the infinite case," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(2), pages 147-160, October.
    3. Heinsalu, Sander, 2012. "Equivalence of the information structure with unawareness to the logic of awareness," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2453-2468.
    4. Rubinstein, Ariel, 1991. "Comments on the Interpretation of Game Theory," Econometrica, Econometric Society, vol. 59(4), pages 909-924, July.
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    6. Simon Grant & John Quiggin, 2013. "Inductive reasoning about unawareness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(3), pages 717-755, November.
    7. Schipper, Burkhard C, 2011. "Preference-Based Unawareness," MPRA Paper 30221, University Library of Munich, Germany.
    8. Kim-Sau Chung & Oliver Board, 2007. "Object-Based Unawareness," Working Papers 2007-2, University of Minnesota, Department of Economics, revised 24 Aug 2007.
    9. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2006. "Interactive unawareness," Journal of Economic Theory, Elsevier, vol. 130(1), pages 78-94, September.
    10. Halpern, Joseph Y., 2001. "Alternative Semantics for Unawareness," Games and Economic Behavior, Elsevier, vol. 37(2), pages 321-339, November.
    11. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2008. "A canonical model for interactive unawareness," Games and Economic Behavior, Elsevier, vol. 62(1), pages 304-324, January.
    12. Li, Jing, 2009. "Information structures with unawareness," Journal of Economic Theory, Elsevier, vol. 144(3), pages 977-993, May.
    13. Burkhard C. Schipper & Oliver Board & Kim-Sau Chung, 2009. "Two Models of Unawareness: Comparing the object-based and subjective-state-space approaches," Working Papers 93, University of California, Davis, Department of Economics.
    14. Halpern, Joseph Y. & Rego, Leandro Chaves, 2008. "Interactive unawareness revisited," Games and Economic Behavior, Elsevier, vol. 62(1), pages 232-262, January.
    15. Morris, Stephen, 1996. "The Logic of Belief and Belief Change: A Decision Theoretic Approach," Journal of Economic Theory, Elsevier, vol. 69(1), pages 1-23, April.
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    17. Blume, Lawrence & Easley, David & Halpern, Joseph Y., 2009. "Constructive Decision Theory," Economics Series 246, Institute for Advanced Studies.
    18. Jing Li, 2008. "A Note on Unawareness and Zero Probability," PIER Working Paper Archive 08-022, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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    20. Modica, Salvatore & Rustichini, Aldo, 1999. "Unawareness and Partitional Information Structures," Games and Economic Behavior, Elsevier, vol. 27(2), pages 265-298, May.
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    Citations

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    Cited by:

    1. repec:kap:theord:v:83:y:2017:i:2:d:10.1007_s11238-017-9594-z is not listed on IDEAS
    2. Karni, Edi & Vierø, Marie-Louise, 2017. "Awareness of unawareness: A theory of decision making in the face of ignorance," Journal of Economic Theory, Elsevier, vol. 168(C), pages 301-328.
    3. Edi Karni & Marie-Louise Vier?, 2013. ""Reverse Bayesianism": A Choice-Based Theory of Growing Awareness," American Economic Review, American Economic Association, vol. 103(7), pages 2790-2810, December.
    4. Yasuo Sasaki, 2016. "An Equivalence Result on the Reduction of Games with Unawareness," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 18(03), pages 1-27, September.
    5. Schipper, Burkhard C, 2011. "Preference-Based Unawareness," MPRA Paper 30221, University Library of Munich, Germany.
    6. O'Callaghan, Patrick, 2017. "Axioms for Measuring without mixing apples and Oranges," MPRA Paper 81196, University Library of Munich, Germany.
    7. Martin Meier & Burkhard Schipper, 2014. "Bayesian games with unawareness and unawareness perfection," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(2), pages 219-249, June.
    8. repec:spr:annopr:v:256:y:2017:i:2:d:10.1007_s10479-016-2266-5 is not listed on IDEAS
    9. repec:eee:jetheo:v:175:y:2018:i:c:p:265-290 is not listed on IDEAS
    10. Konrad Grabiszewski, 2015. "Rationalizing epistemic bounded rationality," Theory and Decision, Springer, vol. 78(4), pages 629-637, April.
    11. Grabiszewski Konrad, 2016. "On the Rejectability of the Subjective Expected Utility Theory," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(2), pages 437-454, June.
    12. Wenjun Ma & Burkhard C. Schipper, 2017. "Does exposure to unawareness affect risk preferences? A preliminary result," Theory and Decision, Springer, vol. 83(2), pages 245-257, August.
    13. Marie-Louise Viero, 2017. "An intertemporal model of growing awareness," Working Papers 1388, Queen's University, Department of Economics.
    14. Auster, Sarah, 2013. "Asymmetric awareness and moral hazard," Games and Economic Behavior, Elsevier, vol. 82(C), pages 503-521.
    15. Ekaterina Svetlova & Henk van Elst, 2014. "Decision-theoretic approaches to non-knowledge in economics," Papers 1407.0787, arXiv.org.
    16. repec:eee:gamebe:v:106:y:2017:i:c:p:134-152 is not listed on IDEAS

    More about this item

    Keywords

    unawareness; awareness; unforeseen contingencies; null; probability zero; subjective probability; Anscombe-Aumann; small worlds;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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