6533b837fe1ef96bd12a2799
RESEARCH PRODUCT
Unawareness, Priors and Posteriors
Salvatore Modicasubject
media_common.quotation_subjectConditional probabilityContext (language use)CertaintyVariable (computer science)Prior probabilityStatisticsEconometricsAwareness of Unawareness Model UncertaintyGeneral Economics Econometrics and FinanceValue (mathematics)FinanceAxiomMathematicsSimple (philosophy)media_commondescription
Abstract. This note contains first thoughts on awareness of unawareness in a simple dynamic context where a decision situation is repeated over time. The main consequence of increasing awareness is that the model the decision maker uses, and the prior which it contains, becomes richer over time. The decision maker is prepared to this change, and we show that if a projection-consistency axiom is satisfied unawareness does not affect the value of her estimate of a payoff-relevant conditional probability (although it may weaken confidence in such estimate). Probability-zero events however pose a challenge to this axiom, and if that fails, even estimate values will be different if the decision maker takes unawareness into account. In examining evolution of knowledge about relevant variable through time, we distinguish between transition from uncertainty to certainty and from unawareness to certainty directly, and argue that new knowledge may cause posteriors to jump more if it is also new awareness. Some preliminary considerations on convergence of estimates are included.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2008-01-05 |