Rationality of Belief or: Why Savage's Axioms are Neither Necessary Nor Sufficient for Rationality, Second Version

23 Pages Posted: 12 Jan 2007

See all articles by Itzhak Gilboa

Itzhak Gilboa

Tel Aviv University - Eitan Berglas School of Economics; HEC Paris - Economics & Decision Sciences

Andrew Postlewaite

University of Pennsylvania - Department of Economics

David Schmeidler

Tel Aviv University - Eitan Berglas School of Economics; Ohio State University (OSU)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2007

Abstract

Economic theory reduces the concept of rationality to internal consistency. The practice of economics, however, distinguishes between rational and irrational beliefs. There is therefore an interest in a theory of rational beliefs, and of the process by which beliefs are generated and justified. We argue that the Bayesian approach is unsatisfactory for this purpose, for several reasons. First, the Bayesian approach begins with a prior, and models only a very limited form of learning, namely, Bayesian updating. Thus, it is inherently incapable of describing the formation of prior beliefs. Second, there are many situations in which there is not sufficient information for an individual to generate a Bayesian prior. It follows that the Bayesian approach is neither sufficient not necessary for the rationality of beliefs.

Note: An updated version of this paper can be found at: http://ssrn.com/abstract=1311918

Keywords: Decision making, Bayesian, Behavioral Economics

JEL Classification: B4, D8

Suggested Citation

Gilboa, Itzhak and Postlewaite, Andrew and Schmeidler, David, Rationality of Belief or: Why Savage's Axioms are Neither Necessary Nor Sufficient for Rationality, Second Version (January 2007). PIER Working Paper No. 07-001, Available at SSRN: https://ssrn.com/abstract=956911 or http://dx.doi.org/10.2139/ssrn.956911

Itzhak Gilboa

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
972-3-640-6423 (Phone)
972-3-640-9908 (Fax)

HEC Paris - Economics & Decision Sciences

Paris
France

Andrew Postlewaite (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-7350 (Phone)
215-573-2057 (Fax)

HOME PAGE: http://www.econ.upenn.edu/~apostlew

David Schmeidler

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972-3-640-9643 (Phone)
+972-3-640-9357 (Fax)

Ohio State University (OSU) ( email )

Blankenship Hall-2010
901 Woody Hayes Drive
Columbus, OH OH 43210
United States

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