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A Theory of Bayesian Decision Making

  • Edi Karni

    (Johns Hopkins University)

This paper presents a complete, choice-based, axiomatic Bayesian decision theory. It introduces a new choice set consisting of information-contingent plans for choosing actions and bets and subjective expected utility model with effect-dependent utility functions and action-dependent subjective probabilities which, in conjunction with the updating of the probabilities using Bayes’ rule, gives rise to a unique prior and a set of action-dependent posterior probabilities representing the decision maker’s prior and posterior beliefs.

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File URL: http://www.eief.it/files/2012/09/wp-04-a-theory-of-bayesian-decision-making.pdf
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Paper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 0904.

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Length: 38 pages
Date of creation: 2009
Date of revision: May 2009
Handle: RePEc:eie:wpaper:0904
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  1. Karni, Edi, 1996. "Probabilities and Beliefs," Journal of Risk and Uncertainty, Springer, vol. 13(3), pages 249-62, November.
  2. Hill, Brian, 2010. "An additively separable representation in the Savage framework," Journal of Economic Theory, Elsevier, vol. 145(5), pages 2044-2054, September.
  3. 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.
  4. Karni, E. & Schmeidler, D., 1991. "On the Uniqueness of Subjective Probabilities," Papers 1-92, Tel Aviv - the Sackler Institute of Economic Studies.
  5. Mark J. Machina & David Schmeidler, 1990. "A More Robust Definition of Subjective Probability," Discussion Paper Serie A 306, University of Bonn, Germany.
  6. Wakker, Peter, 1987. "Subjective probabilities for state dependent continuous utility," Mathematical Social Sciences, Elsevier, vol. 14(3), pages 289-298, December.
  7. Karni, Edi, 2006. "Subjective expected utility theory without states of the world," Journal of Mathematical Economics, Elsevier, vol. 42(3), pages 325-342, June.
  8. Edi Karni, 2008. "On Optimal Insurance in the Presence of Moral Hazard*," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 33(1), pages 1-18, June.
  9. Nau, Robert F, 1995. "Coherent Decision Analysis with Inseparable Probabilities and Utilities," Journal of Risk and Uncertainty, Springer, vol. 10(1), pages 71-91, January.
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