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On Machina’s paradoxes and limited attention

  • Anastasia BurkovskayaEmail author
Research Article
  • 22 Downloads

Abstract

Limited attention and similarity of some of the states of the world together may nudge an agent to perceive the “grand world” as a collection of “small worlds”. We use this idea as an explanation for some of the ambiguity paradoxes posed by Machina (Am Econ Rev 99(1):385–392, 2009; Am Econ Rev 104(12):3814–3840, 2014) as a challenge to the prominent ambiguity theories. In addition, we propose a measure of rationality based on a number of potential violations of preference for the first-order stochastic dominance. We use this measure to explore how departures from perfect attention can be improved through changes to the structure of the “small worlds”.

Keywords

Limited attention Ambiguity paradoxes Uncertainty State aggregation FOSD violations 

JEL Classification

D91 D81 D11 

Notes

Compliance with ethical standards

Conflict of interest

The author declares that she has no conflict of interest.

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Copyright information

© Society for the Advancement of Economic Theory 2019

Authors and Affiliations

  1. 1.The University of SydneySydneyAustralia

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