Bayesian Rationality with Subjective Evaluations in Enlivened Decision Trees

Peter Hammond

CRETA Online Discussion Paper Series from Centre for Research in Economic Theory and its Applications CRETA

Abstract: A decision-making agent is usually assumed to be Bayesian rational, or to maximize subjective expected utility, in the context of a completely and correctly specified decision model. Following the discussion in Hammond (2007) of Schumpeter's (1911, 1934) concept of entrepreneurship, and of Shackle's (1953) concept of potential surprise, this paper considers enlivened decision trees whose growth over time cannot be accurately modelled in full detail. An enlivened decision tree involves more severe limitations than model mis-specification, unforeseen contingencies, or unawareness, all of which are typically modelled with reference to a universal state space large enough to encompass any decision model that an agent may consider. We consider three motivating examples based on : (i) Homer's classic tale of Odysseus and the Sirens; (ii) a two-period linear-quadratic model of portfolio choice; (iii) the game of Chess. Though our novel framework transcends standard notions of risk or uncertainty, a form of Bayesian rationality is still possible. Instead of subjective probabilities of different models of a classical finite decision tree, we show that Bayesian rationality and continuity imply subjective expected utility maximization when some terminal nodes have attached real-valued subjective evaluations instead of consequences. Moreover, subjective evaluations lie behind, for example, the kind of Monte Carlo tree search algorithm that has been used by some powerful chess-playing software packages.

Keywords: Prerationality; consequentialist decision theory; entrepreneurship; potential surprise; enlivened decision trees; subjective evaluation of continuation; subtrees; Monte Carlo tree search. JEL Codes: D81; D91; D11; D63 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-dcm, nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://warwick.ac.uk/fac/soc/economics/research/c ... _-_peter_hammond.pdf

Related works:
Working Paper: Bayesian Rationality with Subjective Evaluations in Enlivened Decision Trees (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wrk:wcreta:89

Access Statistics for this paper

More papers in CRETA Online Discussion Paper Series from Centre for Research in Economic Theory and its Applications CRETA Contact information at EDIRC.
Bibliographic data for series maintained by Margaret Nash ().