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IS IT ALWAYS RATIONAL TO SATISFY SAVAGE'S AXIOMS?

Published online by Cambridge University Press:  10 November 2009

Itzhak Gilboa ,
Andrew Postlewaite  and
David Schmeidler
Itzhak Gilboa
Affiliation:
Tel-Aviv University
Andrew Postlewaite
Affiliation:
University of Pennsylvania
David Schmeidler
Affiliation:
Ohio State University
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Abstract

This note argues that, under some circumstances, it is more rational not to behave in accordance with a Bayesian prior than to do so. The starting point is that in the absence of information, choosing a prior is arbitrary. If the prior is to have meaningful implications, it is more rational to admit that one does not have sufficient information to generate a prior than to pretend that one does. This suggests a view of rationality that requires a compromise between internal coherence and justification, similarly to compromises that appear in moral dilemmas. Finally, it is argued that Savage's axioms are more compelling when applied to a naturally given state space than to an analytically constructed one; in the latter case, it may be more rational to violate the axioms than to be Bayesian.

Type
Essay
Information
Economics & Philosophy , Volume 25 , Issue 3: Economics and Philosophy on Ambiguity Aversion , November 2009 , pp. 285 - 296
Copyright
Copyright © Cambridge University Press 2009

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