From Wald to Savage: homo economicus becomes a Bayesian statistician
AbstractBayesian rationality is the paradigm of rational behavior in neoclassical economics. A rational agent in an economic model is one who maximizes her subjective expected utility and consistently revises her beliefs according to Bayes’s rule. The paper raises the question of how, when and why this characterization of rationality came to be endorsed by mainstream economists. Though no definitive answer is provided, it is argued that the question is far from trivial and of great historiographic importance. The story begins with Abraham Wald’s behaviorist approach to statistics and culminates with Leonard J. Savage’s elaboration of subjective expected utility theory in his 1954 classic The Foundations of Statistics. It is the latter’s acknowledged fiasco to achieve its planned goal, the reinterpretation of traditional inferential techniques along subjectivist and behaviorist lines, which raises the puzzle of how a failed project in statistics could turn into such a tremendous hit in economics. A couple of tentative answers are also offered, involving the role of the consistency requirement in neoclassical analysis and the impact of the postwar transformation of US business schools.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 34117.
Date of creation: 14 Oct 2011
Date of revision:
Savage; Wald; rational behavior; Bayesian decision theory; subjective probability; minimax rule; statistical decision functions; neoclassical economics;
Find related papers by JEL classification:
- B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
- B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-22 (All new papers)
- NEP-CIS-2011-10-22 (Confederation of Independent States)
- NEP-ECM-2011-10-22 (Econometrics)
- NEP-EVO-2011-10-22 (Evolutionary Economics)
- NEP-HPE-2011-10-22 (History & Philosophy of Economics)
- NEP-PKE-2011-10-22 (Post Keynesian Economics)
- NEP-UPT-2011-10-22 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Giocoli, Nicola, 2006. "Do Prudent Agents Play Lotteries? Von Neumann's Contribution to the Theory of Rational Behavior," Journal of the History of Economic Thought, Cambridge University Press, Cambridge University Press, vol. 28(01), pages 95-109, March.
- Gilboa, Itzhak & Postlewaite, Andrew & Schmeidler, David, 2009. "Is It Always Rational To Satisfy Savage'S Axioms?," Economics and Philosophy, Cambridge University Press, Cambridge University Press, vol. 25(03), pages 285-296, November.
- Ivan Moscati, 2007.
"History of consumer demand theory 1871�-�1971: A Neo-Kantian rational reconstruction,"
The European Journal of the History of Economic Thought, Taylor & Francis Journals,
Taylor & Francis Journals, vol. 14(1), pages 119-156.
- Ivan Moscati, 2005. "History of consumer demand theory 1871-1971: A Neo-Kantian rational reconstruction," Method and Hist of Econ Thought, EconWPA 0506002, EconWPA.
- Leonard,Robert, 2010. "Von Neumann, Morgenstern, and the Creation of Game Theory," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521562669.
- Edi Karni & Philippe Mongin, 2000.
"On the Determination of Subjective Probability by Choices,"
Management Science, INFORMS,
INFORMS, vol. 46(2), pages 233-248, February.
- Karni, E. & Mongin, P., 1997. "On the Determination of Subjective Probability by Choices," Papers, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor. 9737, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
- E. Karni & Ph. Mongin, 1997. "On the determination of subjective probability by choices," THEMA Working Papers, THEMA (THÃ©orie Economique, ModÃ©lisation et Applications), UniversitÃ© de Cergy-Pontoise 97-37, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Giocoli, Nicola, 2008. "Three alternative (?) stories on the late 20th-century rise of game theory," MPRA Paper, University Library of Munich, Germany 33808, University Library of Munich, Germany.
- Dorian Jullien & Nicolas Vallois, 2012. "A Probabilistic Ghost in the Experimental Machine," GREDEG Working Papers, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis 2012-05, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.