A Note on Learning under the Knightian Uncertainty

Kiyohiko G. Nishimura and Hiroyuki Ozaki
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Kiyohiko G. Nishimura: Faculty of Economics, University of Tokyo
Hiroyuki Ozaki: Faculty of Economics, Tohoku University

No CIRJE-F-113, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: In contrast to the traditional model of uncertainty, where the uncertainty is characterized by a single distribution function that a decision maker faces, the Knightian-uncertainty approach characterizes it as a set of distributions rather than a single one. Hence, learning in the context of Knightian uncertainty is characterized by an update process of the set of distributions after each of random sampling. This note presents two examples in which the Dempster-Shafer update rule, the one which attracts much attention since it seems intuitive, does not at all reduce the Knightian uncertainty (Example 1) and it actually increases the Knightian uncertainty (Example 2). Thus, what is a sensible update process is still an open question under the Knightian uncertainty.

Pages: 12 pages
Date: 2001-04
New Economics Papers: this item is included in nep-evo
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2001cf113

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