From Wald to Savage: homo economicus becomes a Bayesian statistician
Bayesian 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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| Date of creation: | 14 Oct 2011 |
| Handle: | RePEc:pra:mprapa:34117 |
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References listed on IDEAS
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- Giocoli, Nicola, 2008. "Three alternative (?) stories on the late 20th-century rise of game theory," MPRA Paper 33808, University Library of Munich, Germany.
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- Ivan Moscati, 2007. "History of consumer demand theory 1871 - 1971: A Neo-Kantian rational reconstruction," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 14(1), pages 119-156.
- Ivan Moscati, 2005. "History of consumer demand theory 1871-1971: A Neo-Kantian rational reconstruction," Method and Hist of Econ Thought 0506002, EconWPA.
- Gilboa, Itzhak & Postlewaite, Andrew & Schmeidler, David, 2009. "Is It Always Rational To Satisfy Savage'S Axioms?," Economics and Philosophy, Cambridge University Press, vol. 25(03), pages 285-296, November.
- Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2009. "Is It Always Rational to Satisfy Savage's Axioms?," Post-Print hal-00493170, HAL.
- Nicola GIOCOLI, 2005. "Modeling Rational Agents The Consistency View Of Rationality And The Changing Image Of Neoclassical Economics," Cahiers d’économie politique / Papers in Political Economy, L'Harmattan, issue 49, pages 177-208. Full references (including those not matched with items on IDEAS)
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