Objective Rationality Foundations for (Dynamic) α-MEU
Ryota Iijima and
Yves Le Yaouanq
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Mira Frick: Yale University
Ryota Iijima: Yale University
Yves Le Yaouanq: LMU Munich
No 252, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition
We show how incorporating Gilboa, Maccheroni, Marinacci, and Schmeidler’s (2010) notion of objective rationality into the α-MEU model of choice under ambiguity (Hurwicz, 1951) 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)
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