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.
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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)
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