Uncertainty with ordinal likelihood information

Abstract

We present a model that is closely related to the so-called models of choice under complete uncertainty, in which the agent has no information about the probability of the outcomes. There are two approaches within the said models: the state space-based approach, which takes into account the possible states of nature and the correspondence between states and outcomes; and the set-based approach, which ignores such information, and solves certain difficulties arising from the state space-based approach. Kelsey (Int Econ Rev 34:297–308, 1993) incorporates into a state space-based framework the assumption that the agent has ordinal information about the likelihood of the states. This paper incorporates this same assumption into a set-based framework, thus filling a theoretical gap in the literature. Compared to the set-based models of choice under complete uncertainty we introduce the information about the ordinal likelihood of the outcomes while, compared to Kelsey’s approach, we incorporate the advantages of describing uncertainty environments from the set-based perspective. We present an axiomatic study that includes adaptations of some of the axioms found in the related literature and we characterize some rules featuring different combinations of information about the ordinal likelihood of the outcomes and information about their desirability.