Ambiguity and Awareness: A Coherent Multiple Priors Model

Simon Grant, Guerdjikova Ani () and John Quiggin
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Guerdjikova Ani: Grenoble Applied Economics Laboratory, University of Grenoble Alpes, CNRS, INRAE, INP, IUF, Grenoble, France

The B.E. Journal of Theoretical Economics, 2021, vol. 21, issue 2, 571-612

Abstract: Ambiguity in the ordinary language sense means that available information is open to multiple interpretations. We model this by assuming that individuals are unaware of some possibilities relevant to the outcome of their decisions and that multiple probabilities may arise over an individual’s subjective state space depending on which of these possibilities are realized. We formalize a notion of coherent multiple priors and derive a representation result that with full awareness corresponds to the usual unique (Bayesian) prior but with less than full awareness generates multiple priors. When information is received with no change in awareness, each element of the set of priors is updated in the standard Bayesian fashion (that is, full Bayesian updating). An increase in awareness, however, leads to an expansion of the individual’s subjective state and (in general) a contraction in the set of priors under consideration.

Keywords: ambiguity; multiple priors; unawareness (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Working Paper: Ambiguity and Awareness: A Coherent Multiple Priors Model (2021)
Working Paper: Ambiguity and awareness: a coherent multiple priors model. * (2020)
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DOI: 10.1515/bejte-2018-0185

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