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Rationality of Belief Or: Why Savage's axioms are neither necessary nor sufficient for rationality, Second Version

Author

Listed:
  • Itzhak Gilboa

    (Eitan Berglas School of Economics, Tel Aviv University and HEC, Paris)

  • Andrew Postlewaite

    (Department of Economics, University of Pennsylvania)

  • David Schmeidler

    (Tel-Aviv University and Ohio State University)

Abstract

Economic theory reduces the concept of rationality to internal consistency. As far as beliefs are concerned, rationality is equated with having a prior belief over a “Grand State Space†, describing all possible sources of uncertainties. We argue that this notion is too weak in some senses and too strong in others. It is too weak because it does not distinguish between rational and irrational beliefs. Relatedly, the Bayesian approach, when applied to the Grand State Space, is inherently incapable of describing the formation of prior beliefs. On the other hand, this notion of rationality is too strong because there are many situations in which there is not sufficient information for an individual to generate a Bayesian prior. It follows that the Bayesian approach is neither sufficient not necessary for the rationality of beliefs.

Suggested Citation

  • Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2004. "Rationality of Belief Or: Why Savage's axioms are neither necessary nor sufficient for rationality, Second Version," PIER Working Paper Archive 08-043, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 03 Dec 2008.
    • Handle: RePEc:pen:papers:08-043
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    Cited by:

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    3. Scott Condie & Jayant V. Ganguli, 2011. "Ambiguity and Rational Expectations Equilibria," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(3), pages 821-845.
    4. Avdagic, Sabina, 2006. "One Path or Several? Understanding the Varied Development of Tripartism in New European Capitalisms," MPIfG Discussion Paper 06/5, Max Planck Institute for the Study of Societies.
    5. Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2007. "Probabilities in Economic Modeling," PIER Working Paper Archive 07-023, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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    More about this item

    Keywords

    Decision making; Bayesian; Behavioral Economics;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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