On the Relation between Robust and Bayesian Decision Making

Klaus Adam

No 2003/02, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: This paper compares Bayesian decision theory with robust decision theory where the decision maker optimizes with respect to the worst state realization. For a class of robust decision problems there exists a sequence of Bayesian decision problems whose solution converges towards the robust solution. It is shown that the limiting Bayesian problem displays infinite risk aversion and that decisions are insensitive (robust) to the precise assignment of prior probabilities. This holds independent from whether the preference for robustness is global or restricted to local perturbations around some reference model.

Keywords: robust decision theory; uncertainty aversion; risk aversion (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: On the relation between robust and Bayesian decision making (2004)
Working Paper: On the Relation between Robust and Bayesian Decision Making (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:200302

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