Four specific topics will be covered in this research. (1) Axiomatic models of choice in the face of unforeseen contingencies will be developed, with emphasis given to models of dynamic choice and choice in multiperson settings. The objective would be to establish axioms that represent rational preferences when the decisionmaker is unsure of what future contingencies are even possible, much less which will occur. (2) Efficient contractual forms in the presence of unforeseen contingencies will be analyzed, emphasizing how bilateral, relational contracts will change with changes in the knowledge the parties have about each other's preferences and future contingencies. (3) The impact of unforeseen contingencies on liability insurance will be studied, emphasizing the second best form of liability insurance in the face of limited liability laws. (4) The creation of a notion of similarity between different situations through the use of cheap talk will be investigated, where one party simply declares one situation to be similar to others. The questions are when such declarations will be credible and whether such a situation can arise naturally through a heuristic learning process. An important general theme of this research, more apparent in the first three topics than in the fourth, is how individuals adapt and equilibria are constructed in contexts where the individuals are constantly confronted with situations that their earlier plans did not anticipate. This is a hallmark of global, as well as more local, change; how do individuals, economies, and societies adapt to an environment in which the rules and conditions are always changing? How, for example, should we proceed in the face of the greenhouse effect, where there is honest controversy as to what the eventual consequences of various actions (or inactions) will be? How should national economies construct their trade relations, a context in which there are clear choices to be made between bilateral and tri- or multi-lateral contracting forms, and the different countries are constantly working out the nature of their relationships in the face of changing conditions? Some of the tools developed and the paradigmatic forms of research employed in this project will be useful in providing answers to specific questions such as those posed above.
