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Understanding the nonadditive probability decision model

  • Mukerji, S.

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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Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 9517.

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Date of creation: 01 Jan 1995
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Handle: RePEc:stn:sotoec:9517
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  1. Golinelli, Roberto & Orsi, Renzo, 1994. " Price-Wage Dynamics in a Transition Economy: The Case of Poland," Economic Change and Restructuring, Springer, vol. 27(3), pages 293-313.
  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, March.
  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. 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.
  5. Johansen, Soren, 1992. "Determination of Cointegration Rank in the Presence of a Linear Trend," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 383-97, August.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. Welfe, Aleksander, 1996. " The Price-Wage Inflationary Spiral in Poland," Economic Change and Restructuring, Springer, vol. 29(1), pages 33-50.
  11. Welfe, Aleksander, 1991. " Modelling Wages in Centrally Planned Economies: The Case of Poland," Economic Change and Restructuring, Springer, vol. 24(1), pages 47-58.
  12. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  13. 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.
  14. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
  15. repec:sae:niesru:v:111:y::i:1:p:62-85 is not listed on IDEAS
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