Event Exchangeability: Probabilistic Sophistication Without Continuity or Monotonicity
Econometrica · 2006 · Volume 74 · Issue 3
DOI: 10.1111/j.1468-0262.2006.00682.x
Abstract
Building on the Ramsey–de Finetti idea of event exchangeability, we derive a characterization of probabilistic sophistication without requiring any of the various versions of monotonicity, continuity, or comparative likelihood assumptions imposed by Savage (1954), Machina and Schmeidler (1992), and Grant (1995). Our characterization identifies a unique and finitely-additive subjective probability measure over an algebra of events.
Keywords
Uncertainty, risk, ambiguity, decision theory, nonexpected utility, probabilistic sophistication
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