Relevance and Symmetry

Sujoy Mukerji and Peter Klibanoff and Kyoungwon Seo

No 539, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: We define a behavioral concept of relevance in the context of decision making under uncertainty. We argue that this concept provides a sensible answer to the question "What probabilistic environments do an individuals' preferences reveal as mattering to her decisions?" under a symmetry assumption. This question has important implications for economic modeling. It is often the case that a modeler desires to restrict the probabilistic environments a decision maker considers. Without a concept of relevant beliefs, it is impossible to check from preferences whether a model is reflecting what the modeler intended. This checking is essential to isolating the effect of changing information while holding tastes fixed. We show that a single concept of relevance delivers this for a wide range of models, including models that allow for ambiguity attitude. We also use symmetry and relevance to provide insight into the foundations of theα-MEU and smooth ambiguity models of decision-making under uncertainty.

Keywords: Symmetry; Beliefs; Ambiguity; Comparative statics of information (search for similar items in EconPapers)
JEL-codes: D01 D80 D81 D83 (search for similar items in EconPapers)
Date: 2011-02-01
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Citations: View citations in EconPapers (10)

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