Decision-theoretic approaches to non-knowledge in economics
This is an incremental review for economists and decision theorists addressing foundational modeling challenges.
The paper reviews two conceptual approaches for formally representing a decision maker's non-knowledge in static economic decision problems, focusing on probability measures over states of Nature and sets of states for unawareness, and discusses unresolved issues in both.
We review two strands of conceptual approaches to the formal representation of a decision maker's non-knowledge at the initial stage of a static one-person, one-shot decision problem in economic theory. One focuses on representations of non-knowledge in terms of probability measures over sets of mutually exclusive and exhaustive consequence-relevant states of Nature, the other deals with unawareness of potentially important events by means of sets of states that are less complete than the full set of consequence-relevant states of Nature. We supplement our review with a brief discussion of unresolved matters in both approaches.