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Rationality of Belief Or Why Bayesianism is neither necessary nor sufficient for rationality

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  • Itzhak Gilboa

    ()
    (Eitan Berglas School of Economics, Tel Aviv University)

  • Andrew Postlewaite

    ()
    (Department of Economics, University of Pennsylvania)

  • David Schmeidler

    ()
    (Eitan Berglas School of Economics, Tel Aviv University)

Abstract

Economic theory reduces the concept of rationality to internal consistency. The practice of economics, however, distinguishes between rational and irrational beliefs. There is therefore an interest in a theory of rational beliefs, and of the process by which beliefs are generated and justified. We argue that the Bayesian approach is unsatisfactory for this purpose, for several reasons. First, the Bayesian approach begins with a prior, and models only a very limited form of learning, namely, Bayesian updating. Thus, it is inherently incapable of describing the formation of prior beliefs. Second, there are many situations in which there is not sufficient information for an individual to generate a Bayesian prior. Third, this lack of information is even more acute when we address the beliefs that can be attributed to a society. We hold that one needs to explore other approaches to the representation of information and of beliefs, which may be helpful in describing the formation of Bayesian as well as non-Bayesian beliefs.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 04-011.

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Length: 21 pages
Date of creation: 01 Mar 2004
Date of revision:
Handle: RePEc:pen:papers:04-011

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Keywords: Decision making; Bayesian; Behavioral Economics;

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  1. Mark J. Machina & David Schmeidler, 1994. "Bayes Without Bernoulli: Simple Conditions for Probabilistically Sophisticated Choice," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1088, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  7. Paolo Ghirardato, 2002. "Revisiting Savage in a conditional world," Economic Theory, Springer, Springer, vol. 20(1), pages 83-92.
  8. Enriqueta Aragones & Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2004. "Fact-Free Learning," Cowles Foundation Discussion Papers 1491, Cowles Foundation for Research in Economics, Yale University.
    • Enriqueta Aragones & Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2003. "Fact-Free Learning," PIER Working Paper Archive 03-023, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Enriqueta Aragones & Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2003. "Fact-Free Learning," PIER Working Paper Archive 05-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Dec 2004.
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Citations

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Cited by:
  1. Itzhak Gilboa & Offer Lieberman & David Schmeidler, 2007. "On the Definition of Objective Probabilities by Empirical Similarity," Levine's Bibliography 843644000000000363, UCLA Department of Economics.
  2. Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2007. "Probabilities in Economic Modeling," Levine's Bibliography 843644000000000357, UCLA Department of Economics.
  3. Tigran Melkonyan & Mark Pingle, 2010. "Ambiguity, pessimism, and rational religious choice," Theory and Decision, Springer, Springer, vol. 69(3), pages 417-438, September.
  4. Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2007. "Probability and Uncertainty in Economic Modeling, Second Version," PIER Working Paper Archive 08-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 28 Jan 2008.
  5. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2005. "Cultural Biases in Economic Exchange," CEPR Discussion Papers 4837, C.E.P.R. Discussion Papers.

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