Bayes Without Bernoulli: Simple Conditions for Probabilistically Sophisticated Choice
In 1963, Anscombe and Aumann demonstrated that the introduction of an objective randomizing device into the Savage setting of subjective uncertainty considerably simplified the derivation of subjective probability from a decision maker's preferences over uncertain bets. The purpose of this paper is to present a more general derivation of classical subjective probability in such a framework, which neither assumes nor implies that the individual's risk preferences necessarily conform to the expected utility principle. We argue that the essence of "Bayesian rationality" is the assignment, correct manipulation, and proper updating of subjective event probablities when evaluating and comparing uncertain prospects, regardless of whether attitudes toward risk satisfy the expected utility property.
|Date of creation:||Apr 1994|
|Contact details of provider:|| Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014|
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Econometric Society, vol. 57(3), pages 571-587, May.
- David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
- Machina, Mark J, 1989. "Dynamic Consistency and Non-expected Utility Models of Choice under Uncertainty," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1622-1668, December.
- Sugden, Robert, 1991. "Rational Choice: A Survey of Contributions from Economics and Philosophy," Economic Journal, Royal Economic Society, vol. 101(407), pages 751-785, July.
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