Ambiguity and awareness: a coherent multiple priors model.

John Quiggin (School of Economics, University of Queensland, Australia)

June 11, 2019, 11:00–12:15


Room MS 003

Environment Economics Seminar


Ambiguity in the ordinary language sense is that available informa- tion is open to multiple interpretations. We model this by assuming that individuals are unaware of some possiblities relevant to the out- come of their decisions and that multiple probabilities may arise over an individuals 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 cor- responds to the usual unique (Bayesian) prior but with less than full awareness generates multiple priors. We show 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 awarenss, however, leads to an expansion of the individuals subjective state and (in general) a contraction in the set of priors under consideration.