Abstract

Drawing from Knight’s original insight that uncertainty stems from the limits of knowledge, this paper presents a novel framework for modelling decision-making under Knightian uncertainty by integrating epistemic logic with the Choquet expected utility model. The framework formalises the agent’s internal informational constraints as a set of epistemically accessible possible worlds, ranked by a plausibility order. From this structure, preferences are derived and evaluated using the Choquet integral. This approach allows ambiguity aversion to emerge endogenously as a rational response to incomplete knowledge, rather than a separate axiom. The proposed model identifies the agent’s optimal choice that maximises expected utility given their epistemic structure, unifying economic and logical treatments of uncertainty. Applications are explored in innovation strategy and game theory. Despite empirical limitations, it offers a rigorous foundation for further research into decision-making under uncertainty, reinterpreting Knightian uncertainty through a formal epistemic structure.

Keywords: Decision Theory, Knightian Uncertainty, Modal Logic, Epistemic Logic

How to Cite:

Ni, Y., (2025) “A Modal-Epistemic Framework of Decision-Making under Knightian Uncertainty”, UCL Journal of Economics 4(1). doi: https://doi.org/10.14324/111.444.2755-0877.2039