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Induced Preferences, Nonadditive Beliefs, and Multiple Priors
Author(s) -
Kelsey David,
Milne Frank
Publication year - 1999
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00024
Subject(s) - unobservable , prior probability , subjective expected utility , decision maker , axiom , mathematical economics , action (physics) , class (philosophy) , decision theory , econometrics , economics , expected utility hypothesis , psychology , mathematics , bayesian probability , microeconomics , computer science , statistics , artificial intelligence , operations research , physics , geometry , quantum mechanics
We study a decision maker who follows the Savage axioms. We show that if he or she is able to take unobservable actions that influence the probabilities of outcomes, then it can appear to an outsider as if his or her subjective probabilities are nonadditive. Implications for multiperiod decision are explored. We extend the model to include a second individual who is also able to take a hidden action. We show that this may induce uncertainty‐averse preferences over some class of acts, even if the second individual acts to help the decision maker with high probability.