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A theory-based decision model

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  • Karni, Edi

Abstract

This paper proposes a theory-based model of decision-making under uncertainty the main premise of which is that predictions of the outcomes of acts are derived from theories. Realized act-outcome pairs provide information on the basis of which decision makers update their beliefs regarding the validity of the underlying theories. Consequently, acts are, simultaneously, information–generating initiatives, or experiments, that have material consequences. Experiments, that is, information–generating initiatives of no direct material consequences, are characterized and the value of information they generate defined. An incentive-compatible mechanism is introduced by which the beliefs decision-makers holds regarding the validity of the theories are elicited.

Suggested Citation

  • Karni, Edi, 2022. "A theory-based decision model," Journal of Economic Theory, Elsevier, vol. 201(C).
    • Handle: RePEc:eee:jetheo:v:201:y:2022:i:c:s0022053122000345
    DOI: 10.1016/j.jet.2022.105444
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    References listed on IDEAS

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    1. Edi Karni, 2009. "A Mechanism for Eliciting Probabilities," Econometrica, Econometric Society, vol. 77(2), pages 603-606, March.
    2. Edi Karni, 2020. "A mechanism for the elicitation of second-order belief and subjective information structure," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(1), pages 217-232, February.
    3. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2005. "A Smooth Model of Decision Making under Ambiguity," Econometrica, Econometric Society, vol. 73(6), pages 1849-1892, November.
    4. Hyogo, Kazuya, 2007. "A subjective model of experimentation," Journal of Economic Theory, Elsevier, vol. 133(1), pages 316-330, March.
    5. Christopher P. Chambers & Nicolas S. Lambert, 2021. "Dynamic Belief Elicitation," Econometrica, Econometric Society, vol. 89(1), pages 375-414, January.
    6. Ramsey, Frank P., 1926. "Truth and Probability," Histoy of Economic Thought Chapters, in: Braithwaite, R. B. (ed.),The Foundations of Mathematics and other Logical Essays, chapter 7, pages 156-198, McMaster University Archive for the History of Economic Thought.
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    Cited by:

    1. Ani Guerdjikova & Jürgen Eichberger, 2023. "Cases and States ," Working Papers hal-03962412, HAL.

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    More about this item

    Keywords

    Theory-based decisions; Experimentation; Value of information; Subjective probabilities; Probability elicitation;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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