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Probability and Uncertainty in Economic Modeling

Author

Listed:
  • Itzhak Gilboa
  • Andrew W. Postlewaite
  • David Schmeidler

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 us characterize situations in which entertaining such beliefs is neither realistic nor necessarily rational.

Suggested Citation

  • Itzhak Gilboa & Andrew W. Postlewaite & David Schmeidler, 2008. "Probability and Uncertainty in Economic Modeling," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 173-188, Summer.
  • Handle: RePEc:aea:jecper:v:22:y:2008:i:3:p:173-88
    Note: DOI: 10.1257/jep.22.3.173
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.22.3.173
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    References listed on IDEAS

    as
    1. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2005. "A Smooth Model of Decision Making under Ambiguity," Econometrica, Econometric Society, vol. 73(6), pages 1849-1892, November.
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    13. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, Oxford University Press, vol. 75(4), pages 643-669.
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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