On Machina’s paradoxes and limited attention

Anastasia Burkovskaya

Economic Theory Bulletin, 2020, vol. 8, issue 2, No 5, 244 pages

Abstract: Abstract Limited attention and similarity of some of the states of the world together may nudge an agent to perceive the “grand world” as a collection of “small worlds”. We use this idea as an explanation for some of the ambiguity paradoxes posed by Machina (Am Econ Rev 99(1):385–392, 2009; Am Econ Rev 104(12):3814–3840, 2014) as a challenge to the prominent ambiguity theories. In addition, we propose a measure of rationality based on a number of potential violations of preference for the first-order stochastic dominance. We use this measure to explore how departures from perfect attention can be improved through changes to the structure of the “small worlds”.

Keywords: Limited attention; Ambiguity paradoxes; Uncertainty; State aggregation; FOSD violations (search for similar items in EconPapers)
JEL-codes: D11 D81 D91 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s40505-019-00179-z

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