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An intertemporal model of growing awareness

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  • Vierø, Marie-Louise

Abstract

This paper presents an intertemporal model of growing awareness. It provides a framework for analyzing problems with long time horizons in the presence of growing awareness and awareness of unawareness. The framework generalizes both the standard event-tree framework and the framework from Karni and Vierø (2017) of awareness of unawareness. Axioms and a representation are provided along with a recursive formulation of intertemporal utility. This allows for tractable and consistent analysis of intertemporal problems with unawareness. To illustrate the relevance of growing awareness for dynamic decision making, the model is applied to a representative agent intertemporal asset pricing problem.

Suggested Citation

  • Vierø, Marie-Louise, 2021. "An intertemporal model of growing awareness," Journal of Economic Theory, Elsevier, vol. 197(C).
    • Handle: RePEc:eee:jetheo:v:197:y:2021:i:c:s002205312100168x
    DOI: 10.1016/j.jet.2021.105351
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    References listed on IDEAS

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    Cited by:

    1. Madotto, Matteo & Severino, Federico, 2023. "Heterogeneous awareness in financial markets," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 26-41.
    2. Marie-Louise Vierø, 2022. "Lost in objective translation: Awareness of unawareness when unknowns are not simply unknowns," Economics Working Papers 2022-06, Department of Economics and Business Economics, Aarhus University.

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    More about this item

    Keywords

    Awareness; Unawareness; Reverse Bayesianism; Intertemporal utility; Recursive utility; Asset pricing;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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