Unawareness, Priors and Posteriors

Salvatore Modica, Salvatore Modica

Risultato della ricerca: Articlepeer review

5 Citazioni (Scopus)

Abstract

Abstract. This note contains first thoughts on awareness of unawareness in a simple dynamic context where a decision situation is repeated over time. The main consequence of increasing awareness is that themodel the decision maker uses, and the prior which it contains, becomes richer over time. The decision maker is prepared to this change, and we show that if a projection-consistency axiom is satisfied unawareness does not affect the value of her estimate of a payoff-relevant conditional probability (although it may weaken confidence in such estimate).Probability-zero events however pose a challenge to this axiom, and if that fails, even estimate values will be different if the decision maker takes unawareness into account. In examining evolution of knowledge about relevant variable through time, we distinguish between transition from uncertainty to certainty and from unawareness to certainty directly, and argue that new knowledge may cause posteriors to jump more if itis also new awareness. Some preliminary considerations on convergence of estimates are included.
Lingua originaleEnglish
Numero di pagine14
RivistaDecisions in Economics and Finance
Volume31
Stato di pubblicazionePublished - 2008

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics, Econometrics and Finance(all)

Fingerprint Entra nei temi di ricerca di 'Unawareness, Priors and Posteriors'. Insieme formano una fingerprint unica.

Cita questo