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Relevance and Symmetry

  • Sujoy Mukerji
  • Peter Klibanoff
  • Kyoungwon Seo

We define a behavioral concept of relevance in the context of decision making under uncertainty.  We argue that this concept provides a sensible answer to the question "What probabilistic environments do an individuals' preferences reveal as mattering to her decisions?" under a symmetry assumption.  This question has important implications for economic modeling.  It is often the case that a modeler desires to restrict the probabilistic environments a decision maker considers.  Without a concept of relevant beliefs, it is impossible to check from preferences whether a model is reflecting what the modeler intended.  This checking is essential to isolating the effect of changing information while holding tastes fixed.  We show that a single concept of relevance delivers this for a wide range of models, including models that allow for ambiguity attitude.  We also use symmetry and relevance to provide insight into the foundations of the α-MEU and smooth ambiguity models of decision-making under uncertainty.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 539.

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Date of creation: 01 Feb 2011
Date of revision:
Handle: RePEc:oxf:wpaper:539
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  1. Thibault Gajdos & Takashi Hayashi & Jean-Marc Tallon & Jean-Christophe Vergnaud, 2006. "Attitude toward imprecise information," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00130179, HAL.
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  10. Robert F. Nau, 2006. "Uncertainty Aversion with Second-Order Utilities and Probabilities," Management Science, INFORMS, vol. 52(1), pages 136-145, January.
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  14. David S. Ahn, 2008. "Ambiguity Without a State Space," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 3-28.
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