Inductive reasoning about unawareness

• Published in: Economic theory Vol. 54; no. 3; pp. 717 - 755
• Main Authors: Grant, Simon, Quiggin, John
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer 01.11.2013; Springer Berlin Heidelberg; Springer Nature B.V
• Subjects: Analysis; Bounded rationality; Consciousness; Deductive reasoning; Dynamic models; Economic theory; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Extensive form games; Game Theory; Games; Grants; Heuristic; Heuristics; Induction; Inductive reasoning; Mathematical models; Microeconomics; Precautionary principle; Public Finance; Rationality; Reason; Reasoning; Research Article; Self-perception; Semantics; Social and Behav. Sciences; Studies; United States; Unawareness; Induction; D80; Bounded rationality; D82
• ISSN: 0938-2259; 1432-0479
• DOI: 10.1007/s00199-012-0734-y

We develop a model of games with awareness that allows for differential levels of awareness. We show that, for the standard modal-logical interpretations of belief and awareness, a player cannot believe there exist propositions of which he is unaware. Nevertheless, we argue that a boundedly rational individual may regard the possibility that there exist propositions of which she is unaware as being supported by inductive reasoning, based on past experience and consideration of the limited awareness of others. In this paper, we provide a formal representation of inductive reasoning in the context of a dynamic game with differential awareness. We show that, given differential awareness over time and between players, individuals can derive inductive support for propositions expressing their own unawareness. We consider the ecological rationality of heuristics to guide decisions in problems involving differential awareness.