SYMMETRY OF EVIDENCE WITHOUT EVIDENCE OF SYMMETRY

Larry Epstein and Kyoungwon Seo ()
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Kyoungwon Seo: Department of Managerial Economics and Decision Sciences, Northwestern University

No wp2008-018, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: The de Finetti Theorem is a cornerstone of the Bayesian approach. Bernardo [4, p. 5] writes that its "message is very clear: if a sequence of observations is judged to be exchangeable, then any subset of them must be regarded as a random sample from some model, and there exists a prior distribution on the parameter of such model, hence requiring a Bayesian approach." We argue that while exchangeability, interpreted as symmetry of evidence, is a weak assumption, when combined with subjective expected utility theory, it implies also complete confidence that experiments are identical. When evidence is sparse, and there is little evidence of symmetry, this implication of de Finetti's hypotheses is not intuitive. We adopt multiple-priors utility as the benchmark model of preference and generalize the de Finetti Theorem to this framework. The resulting model also features a "conditionally IID" representation, but it differs from de Finetti in permitting the degree of confidence in the evidence of symmetry to be subjective.

Pages: 50
Date: 2008-12
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Citations: View citations in EconPapers (1)

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Journal Article: Symmetry of evidence without evidence of symmetry (2010)
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