Decision-theoretic approaches to non-knowledge in economics

This chapter provides an overview of conceptual approaches to incorporate a decision maker’s non-knowledge into economic theory. It focuses on the kind of non-knowledge which one considers to be one of the most important for economic discussions: non-knowledge of possible consequence-relevant uncertain events which a decision maker would have to take into account when selecting between different strategies. Possibility as a measure of subjective non-knowledge is less precise than probability and is based either on a numerical (quantitative) or on a qualitative scaling of events from “totally possible” to “impossible.” The set-theoretic approach can be viewed as a less refined subcase of the propositional logic models of the epistemic approach in that it discards the fine-structure of the states of Nature, thus leading to a syntax-free formalization of unawareness. The elements of the decision matrix, particularly the set of available actions and the set of possible consequences, have been widely excluded from the discussion about non-knowledge in economics to date.