Econ Theory (2013) 54:717–755 DOI 10.1007/s00199-012-0734-y RESEARCH ARTICLE Inductive reasoning about unawareness Simon Grant · John Quiggin Received: 3 May 2011 / Accepted: 23 November 2012 / Published online: 27 December 2012 © Springer-Verlag Berlin Heidelberg 2012 Abstract We develop a model of games with awareness that allows for differential levels of awareness. We show that, for the standard modal-logical interpretations of belief and awareness, a player cannot believe there exist propositions of which he is unaware. Nevertheless, we argue that a boundedly rational individual may regard the possibility that there exist propositions of which she is unaware as being supported by inductive reasoning, based on past experience and consideration of the limited awareness of others. In this paper, we provide a formal representation of inductive reasoning in the context of a dynamic game with differential awareness. We show that, given differential awareness over time and between players, individuals can derive inductive support for propositions expressing their own unawareness. We consider the ecological rationality of heuristics to guide decisions in problems involving differential awareness. Keywords Unawareness · Bounded rationality · Induction JEL Classification D80 · D82 We thank, without implication, Joseph Halpern, Jeff Kline, Mamuro Kaneko, Benoît Menoni, Andrew McLennan, Leandro Rêgo and Matthew Ryan for helpful comments and criticism. Financial support from the Australian Research Council Discovery Grant DP120102463 is gratefully acknowledged. S. Grant · J. Quiggin (B ) School of Economics, University of Queensland, Brisbane, Australia e-mail: j.quiggin@uq.edu.au S. Grant e-mail: simongrant@uq.edu.au 123