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. The practice of economics, however, distinguishes between rational and irrational beliefs. There is therefore an interest in a theory of rational beliefs, and of the process by which beliefs are generated and justified. We argue that the Bayesian approach is unsatisfactory for this purpose, for several reasons. First, the Bayesian approach begins with a prior, and models only a very limited form of learning, namely, Bayesian updating. Thus, it is inherently incapable of describing the formation of prior beliefs. Second, 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)
New Economics Papers: this item is included in nep-hpe, nep-neu and nep-upt
Date: 2004-03-01, Revised 2007-01-03
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Working Paper: Rationality of Belief Or: Why Savage's axioms are neither necessary nor sufficient for rationality, Second Version (2008)
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