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Rationality of Belief Or: Why Savage's axioms are neither necessary nor sufficient for rationality, Second Version

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  • Itzhak Gilboa

    ()
    (Eitan Berglas School of Economics, Tel Aviv University and HEC, Paris)

  • Andrew Postlewaite

    ()
    (Department of Economics, University of Pennsylvania)

  • David Schmeidler

    ()
    (Tel-Aviv University and Ohio State University)

Abstract

Economic theory reduces the concept of rationality to internal consistency. As far as beliefs are concerned, rationality is equated with having a prior belief over a “Grand State Space”, describing all possible sources of uncertainties. We argue that this notion is too weak in some senses and too strong in others. It is too weak because it does not distinguish between rational and irrational beliefs. Relatedly, the Bayesian approach, when applied to the Grand State Space, is inherently incapable of describing the formation of prior beliefs. On the other hand, this notion of rationality is too strong because there are many situations in which there is not sufficient information for an individual to generate a Bayesian prior. It follows that the Bayesian approach is neither sufficient not necessary for the rationality of 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 08-043.

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Length: 26 pages
Date of creation: 01 Mar 2004
Date of revision: 03 Dec 2008
Handle: RePEc:pen:papers:08-043

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Keywords: Decision making; Bayesian; Behavioral Economics;

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  1. Machina Mark J. & Schmeidler David, 1995. "Bayes without Bernoulli: Simple Conditions for Probabilistically Sophisticated Choice," Journal of Economic Theory, Elsevier, vol. 67(1), pages 106-128, October.
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  3. 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.
  4. Itzhak Gilboa & David Schmeidler, 2001. "Inductive Inference: An Axiomatic Approach," Cowles Foundation Discussion Papers 1339, Cowles Foundation for Research in Economics, Yale University.
  5. Epstein, Larry G. & Miao, Jianjun, 2003. "A two-person dynamic equilibrium under ambiguity," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 27(7), pages 1253-1288, May.
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Citations

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

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