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Symmetry Of Evidence Without Evidence Of Symmetry

Author

Listed:
  • Larry G. Epstein

    () (Boston University)

  • Kyoungwon Seo

    () (Department of Managerial Economics and Decision Sciences, Northwestern University)

Abstract

The de Finetti Theorem is a cornerstone of the Bayesian approach. Bernardo [4, p. 5] writes that its "message is very clear: if a sequence of observations is judged to be exchangeable, then any subset of them must be regarded as a random sample from some model, and there exists a prior distribution on the parameter of such model, hence requiring a Bayesian approach." We argue that while exchangeability, interpreted as symmetry of evidence, is a weak assumption, when combined with subjective expected utility theory, it implies also complete confidence that experiments are identical. When evidence is sparse, and there is little evidence of symmetry, this implication of de Finetti's hypotheses is not intuitive. We adopt multiple-priors utility as the benchmark model of preference and generalize the de Finetti Theorem to this framework. The resulting model also features a "conditionally IID" representation, but it differs from de Finetti in permitting the degree of confidence in the evidence of symmetry to be subjective.

Suggested Citation

  • Larry G. Epstein & Kyoungwon Seo, 2008. "Symmetry Of Evidence Without Evidence Of Symmetry," Boston University - Department of Economics - Working Papers Series wp2008-018, Boston University - Department of Economics.
  • Handle: RePEc:bos:wpaper:wp2008-018
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    References listed on IDEAS

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    1. Mongin Philippe, 1995. "Consistent Bayesian Aggregation," Journal of Economic Theory, Elsevier, vol. 66(2), pages 313-351, August.
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    Cited by:

    1. Epstein, Larry G. & Seo, Kyoungwon, 2015. "Exchangeable capacities, parameters and incomplete theories," Journal of Economic Theory, Elsevier, vol. 157(C), pages 879-917.
    2. Rasmus Tangsgaard Varneskov & Pierre Perron, 2011. "Combining Long Memory and Level Shifts in Modeling and Forecasting the Volatility of Asset Returns," CREATES Research Papers 2011-26, Department of Economics and Business Economics, Aarhus University.
    3. Cerreia-Vioglio, Simone & Maccheroni, Fabio & Marinacci, Massimo & Montrucchio, Luigi, 2013. "Ambiguity and robust statistics," Journal of Economic Theory, Elsevier, vol. 148(3), pages 974-1049.
      • Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. "Ambiguity and Robust Statistics," Working Papers 382, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    4. Nabil I. Al-Najjar & Luciano De Castro, 2010. "Prediction Markets to Forecast Electricity Demand," Discussion Papers 1529, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Peter Klibanoff & Sujoy Mukerji & Kyoungwon Seo, 2014. "Perceived Ambiguity and Relevant Measures," Econometrica, Econometric Society, vol. 82, pages 1945-1978, September.
    6. Al-Najjar, Nabil I. & De Castro, Luciano, 2014. "Parametric representation of preferences," Journal of Economic Theory, Elsevier, vol. 150(C), pages 642-667.
    7. Larry G. Epstein & Yoram Halevy, 2017. "Ambiguous Correlation," Boston University - Department of Economics - Working Papers Series WP2017-006, Boston University - Department of Economics.
    8. Epstein, Larry G. & Halevy, Yoram, 2014. "No Two Experiments are Identical," Microeconomics.ca working papers yoram_halevy-2014-9, Vancouver School of Economics, revised 15 Feb 2017.
    9. Luciano Castro & Alain Chateauneuf, 2011. "Ambiguity aversion and trade," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 243-273.
    10. Epstein Larry G & Seo Kyoungwon, 2011. "Symmetry or Dynamic Consistency?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-14, June.
    11. Roee Teper, 2016. "Plans of Action," Working Paper 5859, Department of Economics, University of Pittsburgh.
    12. Epstein, Larry G. & Seo, Kyoungwon, 2014. "De Finetti meets Ellsberg," Research in Economics, Elsevier, pages 11-26.
    13. Luciano Castro & Alain Chateauneuf, 2011. "Ambiguity aversion and trade," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 243-273.
    14. repec:bos:wpaper:wp2013-001 is not listed on IDEAS
    15. Epstein, Larry G. & Seo, Kyoungwon, 2014. "De Finetti meets Ellsberg," Research in Economics, Elsevier, pages 11-26.

    More about this item

    JEL classification:

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

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