Objective rationality foundations for (dynamic) α-MEU

Mira Frick, Ryota Iijima and Yves Le Yaouanq ()

Journal of Economic Theory, 2022, vol. 200, issue C

Abstract: We show how incorporating Gilboa et al.'s (2010) notion of objective rationality into the α-MEU model of choice under ambiguity can overcome several challenges faced by the baseline model without objective rationality. The decision-maker (DM) has a subjectively rational preference ≿∧, which captures the complete ranking over acts the DM expresses when forced to make a choice; in addition, we endow the DM with a (possibly incomplete) objectively rational preference ≿⁎, which captures the rankings the DM deems uncontroversial. Under the objectively founded α-MEU model, ≿∧ has an α-MEU representation and ≿⁎ has a unanimity representation à la Bewley (2002), where both representations feature the same utility index and set of beliefs. While the axiomatic foundations of the baseline α-MEU model are still not fully understood, we provide a simple characterization of its objectively founded counterpart. Moreover, in contrast with the baseline model, the model parameters are uniquely identified. Finally, we provide axiomatic foundations for prior-by-prior Bayesian updating of the objectively founded α-MEU model, while we show that, for the baseline model, standard updating rules can be ill-defined.

Keywords: Ambiguity; α-MEU; Objective rationality; Updating (search for similar items in EconPapers)
JEL-codes: D81 D84 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Objective Rationality Foundations for (Dynamic) α-MEU (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:200:y:2022:i:c:s0022053121002118

DOI: 10.1016/j.jet.2021.105394

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