On the Rejectability of the Subjective Expected Utility Theory
Grabiszewski Konrad ()
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Grabiszewski Konrad: Department of Economics, University of Miami, Coral Gables, FL 33124, USA
The B.E. Journal of Theoretical Economics, 2016, vol. 16, issue 2, pages 437-454
State space, a key element of the Subjective Expected Utility (SEU) theory, is not observable. This implies that, in order to test the SEU theory, it is necessary to assume some state space. Consequently, if the SEU theory is rejected, then it is appropriate to conduct a robustness check; that is, to search for a different state space and a probability over that state space which together do not lead to the rejection of the SEU theory. To find such state space and probability means to SEU-rationalize the agent’s behavior. I show how to conduct the process of SEU-rationalization and determine when an SEU-rationalization is possible.
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