A Theory of Rational Choice under Ignorance
- Klaus Nehring
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This paper contributes to a theory of rational choice for decision-makers with incomplete preferences due to partial ignorance, whose beliefs are representable as sets of acceptable priors. We focus on the limiting case of `Complete Ignorance' which can be viewed as reduced form of the general case of partial ignorance. Rationality is conceptualized in terms of a `Principle of Preference-Basedness', according to which rational choice should be isomorphic to asserted preference. The main result characterizes axiomatically a new choice-rule called `Simultaneous Expected Utility Maximization'. It can be interpreted as agreement in a bargaining game (Kalai-Smorodinsky solution) whose players correspond to the (extremal) `acceptable priors' among which the decision maker has suspended judgment. An essential but non-standard feature of Simultaneous Expected Utility choices is their dependence on the entire choice set. This is justified by the conception of optimality as compromise rather than as superiority in pairwise comparisons.
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- A Theory of Rational Choice under Ignorance
Theory and Decision
Volume 48, Issue 3 , pp 205-240
- Cover Date
- Print ISSN
- Online ISSN
- Kluwer Academic Publishers
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- Multiple priors
- Rational choice
- Incomplete preference
- Sure-thing principle
- Choice consistency
- Industry Sectors
- Klaus Nehring (1)
- Author Affiliations
- 1. Department of Economics, University of California, Davis, CA, 95616, USA