Context dependent beliefs

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Abstract

This paper examines a model where the set of available outcomes from which a decision maker must choose alters his perception of uncertainty. Specifically, this paper proposes a set of axioms such that each menu induces a subjective belief over an objective state space. The decision maker’s preferences are dependent on the realization of the state. The resulting representation is analogous to state-dependent expected utility within each menu; the beliefs are menu dependent and the utility index is not. Under the interpretation that a menu acts as an informative signal regarding the true state, the paper examines the behavioral restrictions that coincide with different signal structures: elemental (where each element of a menu is a conditionally independent signal) and partitional (where the induced beliefs form a partition of the state space).
Original languageEnglish
Pages (from-to)63-73
Number of pages11
JournalJOURNAL OF MATHEMATICAL ECONOMICS
Volume71
Early online date2 May 2017
DOIs
Publication statusPublished - Aug 2017

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