Context dependent beliefs |
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Institution: | 1. CREST, École Polytechnique, Université Paris-Saclay, Route de Saclay, 91128 Palaiseau, France;2. Max Planck Institute for Tax Law and Public Finance, 80539 Munich, Germany;3. Purdue University, Department of Economics, Krannert School of Management, 403 W. State Street, West Lafayette, IN 47907, USA;1. Department of Economics and Management, Université de Cergy-Pontoise & THEMA,Cergy-Pontoise, 95011, France;2. Department of Economics, University of Georgia, Athens, GA, 30602, USA |
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Abstract: | This paper examines a model where the set of available outcomes from which a decision maker must choose alters his perception of uncertainty. Specifically, this paper proposes a set of axioms such that each menu induces a subjective belief over an objective state space. The decision maker’s preferences are dependent on the realization of the state. The resulting representation is analogous to state-dependent expected utility within each menu; the beliefs are menu dependent and the utility index is not. Under the interpretation that a menu acts as an informative signal regarding the true state, the paper examines the behavioral restrictions that coincide with different signal structures: elemental (where each element of a menu is a conditionally independent signal) and partitional (where the induced beliefs form a partition of the state space). |
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Keywords: | Menu dependence Context dependence Framing Bayesian signals |
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