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Ambiguity and Awareness: A Coherent Multiple Priors Model

Author

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  • Grant Simon

    (Research School of Economics, Australian National University, Canberra, ACT, Australia)

  • Guerdjikova Ani

    (Grenoble Applied Economics Laboratory, University of Grenoble Alpes, CNRS, INRAE, INP, IUF, Grenoble, France)

  • Quiggin John

    (School of Economics, University of Queensland, St Lucia, QLD, Australia)

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.

Suggested Citation

  • Grant Simon & Guerdjikova Ani & Quiggin John, 2021. "Ambiguity and Awareness: A Coherent Multiple Priors Model," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 21(2), pages 571-612, June.
    • Handle: RePEc:bpj:bejtec:v:21:y:2021:i:2:p:571-612:n:4
    DOI: 10.1515/bejte-2018-0185
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    Cited by:

    1. Ani Guerdjikova & Jürgen Eichberger, 2023. "Cases and States ," Working Papers hal-03962412, HAL.
    2. Simon Grant & Idione Meneghel & Rabee Tourky, 2022. "Learning under unawareness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(2), pages 447-475, September.

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    More about this item

    Keywords

    ambiguity; multiple priors; unawareness;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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