A Unified Epistemological Theory of Information Processing

Abstract

What does it mean for an agent faced with choice under uncertainty to “know” something? While a variety of mathematical methods are available to construct formal models to answer this question, the combination of different approaches may lead to unsettling paradoxes. I propose a unified theory that eliminates such inconsistencies by relying on a sharp conceptual distinction between information the decision-maker observes and how much of that information she can cognitively process. The resulting model allows for natural decision-theoretic characterizations of comparing different amounts of information. I also apply the results to the problem of common knowledge and information design.

Keywords: information, knowledge, mental capacity, measure theory, partitions

JEL Classification: C60, D81, D83, G11, K14