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

Itzhak Gilboa, Andrew Postlewaite and David Schmeidler

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

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.

Keywords: Decision making; Bayesian; Behavioral Economics (search for similar items in EconPapers)
JEL-codes: B4 D8 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2004-03-01, Revised 2008-12-03
New Economics Papers: this item is included in nep-hpe and nep-upt
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Working Paper: Rationality of Belief Or: Why Savage's axioms are neither necessary nor sufficient for rationality, Second Version (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:08-043

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