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Bayesian learning and expectations formation: Anything goes

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  • Albert, Max

Abstract

The paper proves that the Bayesian approach to learning and expectations formation implies no propositions that could conceivably be refuted by observation. For a (non-expanding) universe infinite in time but finite at any point of time, it is shown that by a suitable choice of priors, any betting strategy can be rationalized. Consequently, no sequence of future choices can be excluded on the basis of a decision maker's v. Neumann-Morgenstern utility function, her knowledge of past observations, and the assumption of Bayesian rationality. Since no betting strategy is irrational, Bayesianism is useless as a normative theory as well.

Suggested Citation

  • Albert, Max, 1996. "Bayesian learning and expectations formation: Anything goes," Discussion Papers, Series I 284, University of Konstanz, Department of Economics.
    • Handle: RePEc:zbw:kondp1:284
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    File URL: https://www.econstor.eu/bitstream/10419/68915/1/686787846.pdf
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    Citations

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    Cited by:

    1. Max Albert, 2004. "The Voting Power Approach," European Union Politics, , vol. 5(1), pages 139-146, March.
    2. Max Albert, 2017. "How Bayesian Rationality Fails and Critical Rationality Works," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 34(4), pages 313-341, December.
    3. Hans Albert, 2010. "The economic tradition and the constitution of science," Public Choice, Springer, vol. 144(3), pages 401-411, September.
    4. Hans Albert, 2006. "Die ökonomische Tradition und die Verfassung der Wissenschaft," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(s1), pages 113-131, May.

    More about this item

    Keywords

    Bayesianism; Bayesian learning; decision theory; expectations; learning; rational expectations; rationality; rationalizability; subjectively expected utility theory; subjective probability;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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