"A Model of Decision-Making under Unawareness"
joint with Antoine Billot

Abstract.
Economic agents do not always think of all the possible events that affect the outcome of their decisions. For instance, they do not always know all relevant events, or forget some of them because of time pressure. They may also voluntarily omit what they consider to be unimportant details because of computational costs. This paper builds an axiomatic model of decision-making under uncertainty that incorporates such forms of unawareness. Our axioms characterize two different, albeit closely related, representations of preference. The first one relies on a valuation only defined on the events that the agent is aware of. The second one is a particular case of the Choquet Expected Utility model of Schmeidler (1989), where the capacity is a belief function defined on all relevant events. These dual representations allow us to study the relationship between events that the agent is unaware of, events of zero capacity and events that are ambiguous. We also present some financial applications of our model of unawareness to trade and risk sharing arrangements between several agents.