Coping with ignorance: unforeseen contingencies and non-additive uncertainty |
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Authors: | Paolo Ghirardato |
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Institution: | (1) Division of the Humanities and Social Sciences, California Institute of Technology, Pasadena, CA 91125, USA (e-mail: paolo@hss.caltech.edu) , US |
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Abstract: | Summary. In real-life decision problems, decision makers are never provided with the necessary background structure: the set of states
of the world, the outcome space, the set of actions. They have to devise all these by themselves. I model the (static) choice
problem of a decision maker (DM) who is aware that her perception of the decision problem is too coarse, as for instance when
there might be unforeseen contingencies. I make a “bounded rationality' assumption on the way the DM deals with this difficulty,
and then I show that imposing standard subjective expected utility axioms on her preferences only implies that they can be
represented by a (generalized) expectation with respect to a non-additive measure, called a belief function. However, the
axioms do have strong implications for how the DM copes with the type of ignorance described above. Finally, I show that some
decision rules that have been studied in the literature can be obtained as a special case of the model presented here (though
they have to be interpreted differently).
Received: December 16, 1999; revised version: March 22, 2000 |
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Keywords: | and Phrases: Unforeseen contingencies Underspecified decision problem Belief functions Choquet integrals Pessimism index |
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