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On the Rejectability of the Subjective Expected Utility Theory

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  • Grabiszewski Konrad

    (Department of Economics, University of Miami, Coral Gables, FL 33124, USA)

Abstract

State space, a key element of the Subjective Expected Utility (SEU) theory, is not observable. This implies that, in order to test the SEU theory, it is necessary to assume some state space. Consequently, if the SEU theory is rejected, then it is appropriate to conduct a robustness check; that is, to search for a different state space and a probability over that state space which together do not lead to the rejection of the SEU theory. To find such state space and probability means to SEU-rationalize the agent’s behavior. I show how to conduct the process of SEU-rationalization and determine when an SEU-rationalization is possible.

Suggested Citation

  • Grabiszewski Konrad, 2016. "On the Rejectability of the Subjective Expected Utility Theory," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(2), pages 437-454, June.
    • Handle: RePEc:bpj:bejtec:v:16:y:2016:i:2:p:437-454:n:11
    DOI: 10.1515/bejte-2015-0074
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    References listed on IDEAS

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    3. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
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    More about this item

    Keywords

    SEU theory; state space; SEU-rationalization;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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