Decision-theoretic approaches to non-knowledge in economics

TL;DR

This paper reviews decision-theoretic methods for modeling non-knowledge in economics, focusing on probabilistic and unawareness-based representations of decision makers' initial uncertainty.

Contribution

It compares two main approaches to formalize non-knowledge in economic decision theory, highlighting unresolved issues in both frameworks.

Findings

Two main approaches to non-knowledge are identified: probabilistic and unawareness-based.

The review discusses unresolved conceptual issues in both approaches.

The paper provides a comparative analysis of the strengths and limitations of each method.

Abstract

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.