The Paradox of the Bayesian Experts and State-Dependent Utility Theory
AbstractWhen n individuals satisfy the axioms of subjective expected utility (SEU) theory and these individuals' probabilities or/and utilities are sufficiently diverse, it is impossible to aggregate the individuals' preferences into a (n + 1)-preference which is both Paretian and in agreement with SEU theory. The paper restates this paradox in the framework of Anscombe and Aumann's axiomatization of SEU and investigates the consequences of relaxing their state-independence assumption. The paradox disappears from the pure state-dependent framework but reappears in a different form in a sophisticated variant of state-dependent utility theory which achieves the uniqueness of subjective probabilities. The paper compares this novel impossibility result with the earlier one. It concludes by discussing the foundations of the Pareto principle in both the ex ante and ex post versions.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1996026.
Date of creation: 01 Jun 1996
Date of revision:
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Bayesiaoism; State-Dependent Utility; Pareto Principle;
Other versions of this item:
- Mongin, Philippe, 1998. "The paradox of the Bayesian experts and state-dependent utility theory," Journal of Mathematical Economics, Elsevier, vol. 29(3), pages 331-361, April.
- P. Mongin., 1997. "The paradox of the Bayesian experts and state-dependent utility theory," THEMA Working Papers 97-15, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- D60 - Microeconomics - - Welfare Economics - - - General
- D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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