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Awareness of Unawareness: A Theory of Decision Making in the Face of Ignorance

Listed author(s):
  • Edi Karni

    ()

    (Johns Hopkins University)

  • Marie-Louise Vierø

    ()

    (Queen's University)

In the wake of growing awareness, decision makers anticipate that they might acquire knowledge that, in their current state of ignorance, is unimaginable. Supposedly, this anticipation manifests itself in the decision makers' choice behavior. In this paper we model the anticipation of growing awareness, lay choice-based axiomatic foundations to a subjective expected utility representation of beliefs about the likelihood of discovering unknown consequences, and assign utility to consequences that are not only unimaginable but may also be nonexistent. In so doing, we maintain the flavor of reverse Bayesianism of Karni and Vierø (2013, 2015).

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1322.pdf
File Function: First version 2014
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1322.

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Length: 41 pages
Date of creation: Jan 2014
Publication status: Published in Journal of Economic Theory
Handle: RePEc:qed:wpaper:1322
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Web page: http://qed.econ.queensu.ca/
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  1. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2013. "Dynamic unawareness and rationalizable behavior," Games and Economic Behavior, Elsevier, vol. 81(C), pages 50-68.
  2. Machina Mark J. & Schmeidler David, 1995. "Bayes without Bernoulli: Simple Conditions for Probabilistically Sophisticated Choice," Journal of Economic Theory, Elsevier, vol. 67(1), pages 106-128, October.
  3. Alon, Shiri, 2015. "Worst-case expected utility," Journal of Mathematical Economics, Elsevier, vol. 60(C), pages 43-48.
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  12. Edi Karni & Marie-Louise Vierø, 2015. "Probabilistic sophistication and reverse Bayesianism," Journal of Risk and Uncertainty, Springer, vol. 50(3), pages 189-208, June.
  13. Halpern, Joseph Y. & Rego, Leandro Chaves, 2008. "Interactive unawareness revisited," Games and Economic Behavior, Elsevier, vol. 62(1), pages 232-262, January.
  14. Heinsalu, Sander, 2014. "Universal type structures with unawareness," Games and Economic Behavior, Elsevier, vol. 83(C), pages 255-266.
  15. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2013. "Unawareness, beliefs, and speculative trade," Games and Economic Behavior, Elsevier, vol. 77(1), pages 100-121.
  16. 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.
  17. Halpern, Joseph Y. & Rêgo, Leandro C., 2009. "Reasoning about knowledge of unawareness," Games and Economic Behavior, Elsevier, vol. 67(2), pages 503-525, November.
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  20. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2005. "A Smooth Model of Decision Making under Ambiguity," Econometrica, Econometric Society, vol. 73(6), pages 1849-1892, November.
  21. 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.
  22. Simon Grant & John Quiggin, 2015. "A preference model for choice subject to surprise," Theory and Decision, Springer, vol. 79(2), pages 167-180, September.
  23. Yusufcan Masatlioglu & Daisuke Nakajima & Erkut Y. Ozbay, 2012. "Revealed Attention," American Economic Review, American Economic Association, vol. 102(5), pages 2183-2205, August.
  24. Wenjun Ma & Burkhard Schipper, 2016. "Does Exposure to Unawareness Affect Risk Preferences? A Preliminary Result," Working Papers 162, University of California, Davis, Department of Economics.
  25. Halpern, Joseph Y. & Rêgo, Leandro C., 2013. "Reasoning about knowledge of unawareness revisited," Mathematical Social Sciences, Elsevier, vol. 65(2), pages 73-84.
  26. Halpern, Joseph Y., 2001. "Alternative Semantics for Unawareness," Games and Economic Behavior, Elsevier, vol. 37(2), pages 321-339, November.
  27. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 1998. "Standard State-Space Models Preclude Unawareness," Econometrica, Econometric Society, vol. 66(1), pages 159-174, January.
  28. Brian Hill, 2010. "Awareness Dynamics," Post-Print hal-00521801, HAL.
  29. David S. Ahn & Haluk Ergin, 2010. "Framing Contingencies," Econometrica, Econometric Society, vol. 78(2), pages 655-695, 03.
  30. Auster, Sarah, 2013. "Asymmetric awareness and moral hazard," Games and Economic Behavior, Elsevier, vol. 82(C), pages 503-521.
  31. Karni, Edi & Schmeidler, David, 1991. "Utility theory with uncertainty," Handbook of Mathematical Economics,in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 33, pages 1763-1831 Elsevier.
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