Asen Kochov (Bonn Graduate School of Economics)

“A Definition of Unforeseen Contingencies”

Abstract

The paper proposes a choice-theoretic definition of unforeseen contingencies. It is proved that if preference admits a recursive utility representation all contingencies are necessarily foreseen. The paper proceeds axiomatically to develop a nonrecursive model of choice in which some events might be initially unforeseen. The process of updating implied by dynamic behavior generalizes the Bayes rule and permits the collection of foreseen events to expand over time.