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A Note on Unawareness and Zero Probability

Author

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  • Jing Li

    () (Department of Economics, University of Pennsylvania)

Abstract

I study how choice behavior given unawareness of an event differs from choice behavior given subjective belief of zero probability on that event. Depending on different types of unawareness the decision-maker suffers, behavior under unawareness is either incomparable with that under zero probability (in the case of pure unawareness), or drastically different (in the case of partial unawareness). The key differences are (1) partial unawareness permits dynamically inconsistent choice, while zero probability beliefs do not; and (2) there are unforeseen options in an unawareness environment that are necessarily modeled as dominated options in zero probability models.

Suggested Citation

  • 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.
  • Handle: RePEc:pen:papers:08-022
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    File URL: https://economics.sas.upenn.edu/sites/default/files/filevault/working-papers/08-022.pdf
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    Citations

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    Cited by:

    1. John Quiggin, 2016. "The value of information and the value of awareness," Theory and Decision, Springer, vol. 80(2), pages 167-185, February.
    2. Burkhard Schipper, 2013. "Awareness-dependent subjective expected utility," International Journal of Game Theory, Springer;Game Theory Society, vol. 42(3), pages 725-753, August.
    3. Burkhard Schipper, 2010. "Revealed Unawareness," Working Papers 105, University of California, Davis, Department of Economics.
    4. 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.
    5. Marie-Louise Viero, 2017. "An intertemporal model of growing awareness," Working Papers 1388, Queen's University, Department of Economics.
    6. Siddiqi, Hammad, 2014. "The Financial Market Consequences of Growing Awareness: The Case of Implied Volatiltiy Skew," Risk and Sustainable Management Group Working Papers 162568, University of Queensland, School of Economics.
    7. Auster, Sarah, 2013. "Asymmetric awareness and moral hazard," Games and Economic Behavior, Elsevier, vol. 82(C), pages 503-521.
    8. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2013. "Unawareness, beliefs, and speculative trade," Games and Economic Behavior, Elsevier, vol. 77(1), pages 100-121.
    9. Schipper, Burkhard C, 2011. "Preference-Based Unawareness," MPRA Paper 30221, University Library of Munich, Germany.
    10. Fritz, Morgane M.C. & Maxson, Peter A. & Baumgartner, Rupert J., 2016. "The mercury supply chain, stakeholders and their responsibilities in the quest for mercury-free gold," Resources Policy, Elsevier, vol. 50(C), pages 177-192.
    11. Sarah Auster, 2012. "Asymmetric Awareness and Moral Hazard," Economics Working Papers ECO2012/23, European University Institute.
    12. repec:kap:theord:v:83:y:2017:i:3:d:10.1007_s11238-016-9580-x is not listed on IDEAS

    More about this item

    Keywords

    unawareness; zero probability; dynamic consistency; unforeseen contingency; unforeseen options;

    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
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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