Decisions in Economics and Finance

, Volume 31, Issue 2, pp 81–94 | Cite as

Unawareness, priors and posteriors

  • Salvatore ModicaEmail author


This note contains first thoughts on awareness of unawareness in a simple dynamic context where a decision situation is repeated over time. The main consequence of increasing awareness is that the model the decision maker uses, and the prior which it contains, becomes richer over time. The decision maker is prepared to this change, and we show that if a projection-consistency axiom is satisfied unawareness does not affect the value of her estimate of a payoff-relevant conditional probability (although it may weaken confidence in such estimate). Probability-zero events however, pose a challenge to this axiom, and if that fails, even estimate values will be different if the decision maker takes unawareness into account. In examining evolution of knowledge about relevant variable through time, we distinguish between transition from uncertainty to certainty and from unawareness to certainty directly, and argue that new knowledge may cause posteriors to jump more if it is also new awareness. Some preliminary considerations on convergence of estimates are included.


Awareness of Unawareness Model Uncertainty 

JEL Classification

D83 C11 

Mathematics Subject Classification (2000)

91B06 91B44 62C10 


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Copyright information

© Springer-Verlag 2007

Authors and Affiliations

  1. 1.Facoltà di EconomiaPalermoItaly

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