Subjectivism and Economic Analysis: Essays in memory of Ludwig ...

CARLO ZAPPIAthe same discomfort. The difficulties in representing formally howthe knowledge of individual agents changes—which is the upshot ofLachmann’s insistence on the subjective nature of knowledge—hastroubled many neoclassical economists. More and more of themhave increasingly acknowledged these difficulties. This is apparentin the evolution of the notion of equilibrium towards amore dynamic conception, as in the works of Hahn (1973) andFisher (1983). 3What is more important with respect to the Austrian themes isthat there is now an increasing number of attempts to deal explicitlywith the question from a choice theoretic perspective (among others,see Kreps 1992 and Hahn 1995a). Let us take as an example Kreps’sanalysis of unforeseen contingencies. In an effort to give choicetheoretic foundations to Williamson’s contention that many of theforms of contractual arrangements one can observe in markets andorganisations are to be attributed to the need to adapt tocontingencies which cannot be anticipated at the date of thesignature of the contract, Kreps provides a model of choice in whichthe individual agent is aware, at the outset, that unforeseencontingencies may arise. In other words, the individual agent mightnot have been able to imagine at an earlier date an event which henow has to face up to. The analytical trick is to leave room for astate of nature which can be called ‘none of the other states’, whosecontent is not conceivable ex ante. In this way one can imaginedifferent degrees of flexibility preserved by agents for futuredecisions about possibly new events (Kreps 1992:259–61). 4 One canalso refer to the related, and probably more powerful, notion ofunawareness presented in Modica and Rustichini (1994), where thediscussion involves unforeseeable contingencies. In other words, theindividual agent might have been unable not only to think of theevent but even to understand it before its realisation. It is also worthstressing that this kind of approach hints at a departure fromtraditional choice theory, which is not in principle limited toexogenous uncertainty as indicated by Hahn’s conjecture (1995a)about the possibility of introducing endogenous uncertainty intoequilibrium theory via the notion of unawareness. I believe that thenotion of unawareness can account for certain aspects of Vaughn’sidea of ‘genuine novelty’.The aspects of decision theory just mentioned do not represent anisolated contention by certain leading authors. The astonishingincrease in studies concerned with informational asymmetries,incomplete contracts, non-additive probability theory and so on do130