Rationality of Belief Or: Why Savage's Axioms are Neither Necessary nor Sufficient for Rationality, Second Version
Yale University - Cowles Foundation; Tel Aviv University - Eitan Berglas School of Economics
University of Pennsylvania - Department of Economics
Tel Aviv University
PIER Working Paper No. 07-001
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
Number of Pages in PDF File: 23
Keywords: Decision making, Bayesian, Behavioral Economics
JEL Classification: B4, D8working papers series
Date posted: January 12, 2007
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo3 in 0.703 seconds