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Decisions in Economics and Finance

, Volume 25, Issue 2, pp 79–110 | Cite as

Knightian decision theory. Part I

  • Truman F. Bewley

Abstract.

A theory of choice under uncertainty is proposed which removes the completeness assumption from the Anscombe–Aumann formulation of Savage's theory and introduces an inertia assumption. The inertia assumption is that there is such a thing as the status quo and an alternative is accepted only if it is preferred to the status quo. This theory is one way of giving rigorous expression to Frank Knight's distinction between risk and uncertainty.

Mathematics Subject Classification (2000): 91B06 
Journal of Economic Literature Classification: D81 

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Copyright information

© Springer-Verlag Italia 2002

Authors and Affiliations

  • Truman F. Bewley
    • 1
  1. 1.Department of Economics, Yale University¶e-mail: truman.bewley@yale.eduUS

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