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Probability and Uncertainty in Economic Modeling, Second Version

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  • Itzhak Gilboa

    ()
    (Department of Economic, Tel-Aviv University)

  • Andrew Postlewaite

    ()
    (Department of Economics, University of Pennsylvania)

  • David Schmeidler

    ()
    (Department of Economics, Ohio State University)

Abstract

Economic modeling assumes, for the most part, that agents are Bayesian, that is, that they entertain probabilistic beliefs, objective or subjective, regarding any event in question. We argue that the formation of such beliefs calls for a deeper examination and for explicit modeling. Models of belief formation may enhance our understanding of the probabilistic beliefs when these exist, and may also help up characterize situations in which entertaining such beliefs is neither realistic nor necessarily rational.

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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 08-002.

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Length: 27 pages
Date of creation: 01 Aug 2007
Date of revision: 28 Jan 2008
Handle: RePEc:pen:papers:08-002

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Keywords: Decision making; Bayesian; Behavioral Economics;

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References

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  1. Itzhak Gilboa & Offer Lieberman & David Schmeidler, 2004. "Empirical Similarity," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1486, Cowles Foundation for Research in Economics, Yale University.
  2. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2005. "A Smooth Model of Decision Making under Ambiguity," Econometrica, Econometric Society, Econometric Society, vol. 73(6), pages 1849-1892, November.
  3. Nishimura, Kiyohiko G. & Ozaki, Hiroyuki, 2004. "Search and Knightian uncertainty," Journal of Economic Theory, Elsevier, Elsevier, vol. 119(2), pages 299-333, December.
  4. Antoine Billot & Itzhak Gilboa & David Schmeidler & Dov Samet, 2004. "Probabilities as Similarity-Weighted Frequencies," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1492, Cowles Foundation for Research in Economics, Yale University.
  5. Lars Peter Hansen & Thomas J. Sargent & Thomas D. Tallarini Jr., 1997. "Robust Permanent Income and Pricing," Levine's Working Paper Archive 596, David K. Levine.
  6. Karni, Edi, 1993. "A Definition of Subjective Probabilities with State-Dependent Preferences," Econometrica, Econometric Society, Econometric Society, vol. 61(1), pages 187-98, January.
  7. Dow, James & Werlang, Sergio Ribeiro da Costa, 1992. "Uncertainty Aversion, Risk Aversion, and the Optimal Choice of Portfolio," Econometrica, Econometric Society, Econometric Society, vol. 60(1), pages 197-204, January.
  8. Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2004. "Rationality of Belief Or: Why Savage's axioms are neither necessary nor sufficient for rationality, Second Version," PIER Working Paper Archive, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 08-043, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 03 Dec 2008.
  9. Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2004. "Rationality of Belief. Or: Why Bayesianism is Neither Necessary nor Sufficient for Rationality," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1484, Cowles Foundation for Research in Economics, Yale University.
  10. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2006. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Econometrica, Econometric Society, Econometric Society, vol. 74(6), pages 1447-1498, November.
  11. Karni, Edi & Postlewaite, Andrew, 2005. "David Schmeidler," Games and Economic Behavior, Elsevier, Elsevier, vol. 50(1), pages 1-2, January.
  12. Lars Peter Hansen & Thomas J. Sargent, 2001. "Acknowledging Misspecification in Macroeconomic Theory," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 519-535, July.
  13. Karni, Edi & Schmeidler, David & Vind, Karl, 1983. "On State Dependent Preferences and Subjective Probabilities," Econometrica, Econometric Society, Econometric Society, vol. 51(4), pages 1021-31, July.
  14. Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2004. "Rationality of Belief," Levine's Bibliography 122247000000000690, UCLA Department of Economics.
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