Second-order Inductive Inference: an axiomatic approach

Patrick H. O'Callaghan

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Abstract: Consider a predictor who ranks eventualities on the basis of past cases: for instance a search engine ranking webpages given past searches. Resampling past cases leads to different rankings and the extraction of deeper information. Yet a rich database, with sufficiently diverse rankings, is often beyond reach. Inexperience demands either "on the fly" learning-by-doing or prudence: the arrival of a novel case does not force (i) a revision of current rankings, (ii) dogmatism towards new rankings, or (iii) intransitivity. For this higher-order framework of inductive inference, we derive a suitably unique numerical representation of these rankings via a matrix on eventualities x cases and describe a robust test of prudence. Applications include: the success/failure of startups; the veracity of fake news; and novel conditions for the existence of a yield curve that is robustly arbitrage-free.

Date: 2019-04, Revised 2021-03
New Economics Papers: this item is included in nep-evo
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1904.02934

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