Framing Contingencies
Econometrica · 2010 · Volume 78 · Issue 2
Abstract
The subjective likelihood of a contingency often depends on the manner in which it is described to the decision maker. To accommodate this dependence, we introduce a model of decision making under uncertainty that takes as primitive a family of preferences indexed by partitions of the state space. Each partition corresponds to a description of the state space. We characterize the followingpartition-dependent expected utilityrepresentation. The decision maker has a nonadditive set functionνover events. Given a partition of the state space, she computes expected utility with respect to her partition-dependent belief, which weights each cell in the partition byν. Nonadditivity ofνallows the probability of an event to depend on the way in which the state space is described. We propose behavioral definitions for those events that are transparent to the decision maker and those that are completely overlooked, and connect these definitions to conditions on the representation.
Keywords
Partition-dependent expected utility, support theory
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