Undescribable Events

Nabil I. Al-Najjar (), Luca Anderlini and Leonardo Felli ()

No CESifo Working Paper No. 1092, CESifo Working Paper Series from CESifo Group Munich

Abstract: We develop a model of undescribable events. Examples of events that are well understood by economic agents but are prohibitively difficult to describe in advance abound in real-life. This notion has also pervaded a substantial amount of economic literature. We put forth a model of such events using a simple co-insurance problem as backdrop. Undescribable events in our model are understood by economic agents - their consequences and probabilities are known - but are such that every finite description of such events necessarily leaves out relevant features that have a non-negligible impact on the parties' expected utilities. We also show that two key ingredients of our model - probabilities that are finitely additive but fail countable additivity, and a state space that is small (discrete in our model) in a measure-theoretic sense -are necessary ingredients of any model of undescribable events that delivers our results.

Keywords: undescribable events; incomplete contracts; finite invariance; fine variability (search for similar items in EconPapers)
JEL-codes: C69 D81 D89 (search for similar items in EconPapers)
Date: Written
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Related works:
Journal Article: Undescribable Events (2006)
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