Object - Based Unawareness : Theorey and Applications ∗

This paper and its companion paper, Board & Chung [3], provide foundations for applied models of unawareness as seen in Tirole [24] and Chung & Fortnow [5]. In this paper, we provided a set-theoretic description of a general class of unawareness models called object-based unawareness structures, and present two applications. The first application provide a justification for the contra proferentem doctrine of contract interpretation, under which ambiguous terms in a contract are construed against the drafter. Our second application examines speculative trade. We first generalize the classical No Trade Theorem to situations where agents are delusional but nevertheless satisfy a weaker condition called terminal non-delusion. We then introduce the concepts of living in denial (i.e., agents believe, perhaps incorrectly, that there is nothing that they are unaware of) and living in paranoia (i.e., agents believe, perhaps incorrectly, that there is something that they are unaware of). We show that both living in denial and living in paranoid, in the absense of other forms of delusion, imply terminal non-delusion, and hence the no-trade theorem result obtains.