Expected utility without parsimony

This paper develops a model of observable behavior which is explicitly sensitive to knowledge and belief. First, when knowledge and belief agree - asituation called parsimony - each state of the world is proved to encode a well-defined single observation and, therefore, observable behavior is consistent with Subjective Expected Utility (seu). Second, under ambiguity, knowledge and belief disagree but, even in this case, the restriction of observable preferences to the subdomain of events over which knowledge and belief agree necessarily conforms to seu. Third, beyond this subdomain, observable preferences may contradict seu and be, for instance, of the Choquet Expected Utility (ceu) type. Finally, knowledge and belief are shown to give rise to a compelling form of dynamic consistency always achieved under ambiguity.