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Red herrings: Some thoughts on the meaning of zero-probability events and mathematical modeling

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  • Karni, Edi

Abstract

Kicking off the discussion following Savage's presentation at the 1952 Paris colloquium, Arrow raised what he considered to be a difficulty with the intuitive interpretation of Savage's theorem. It suggests that decision makers strictly prefer betting on an event of measure zero over betting on a proper subset of that event. Within the realm of the revealed-preference methodology and limited verifiability, Arrow's difficulty is a red herring: the problem he poses has its origin in the technical aspects of Savage's model and not in its substantive aspect.

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  • Karni, Edi, 2010. "Red herrings: Some thoughts on the meaning of zero-probability events and mathematical modeling," Economics Letters, Elsevier, vol. 107(2), pages 134-135, May.
    • Handle: RePEc:eee:ecolet:v:107:y:2010:i:2:p:134-135
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    1. Lawrence Blume & Adam Brandenburger & Eddie Dekel, 2014. "Lexicographic Probabilities and Choice Under Uncertainty," World Scientific Book Chapters, in: The Language of Game Theory Putting Epistemics into the Mathematics of Games, chapter 6, pages 137-160, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Tian, Dejian & Tian, Weidong, 2014. "Optimal risk-sharing under mutually singular beliefs," Mathematical Social Sciences, Elsevier, vol. 72(C), pages 41-49.

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