Download This PaperLeonard Savage, the Ellsberg Paradox and the Debate on Subjective Probabilities: Evidence from the Archives
Forthcoming in the Journal of the History of Economic Thought
24 Pages Posted: 28 Apr 2020 Last revised: 1 May 2020
Date Written: March 30, 2020
Abstract
This paper explores archival material concerning the reception of Leonard J. Savage’s foundational work of subjective-Bayesian decision-making. The focus is on the criticism raised in the early 1960s by Daniel Ellsberg, William Fellner and Cedric Smith, who were supporters of the newly developed subjective approach, but could not understand Savage’s insistence on the strict version he shared with Bruno de Finetti. The episode is well-known, thanks to the so-called Ellsberg Paradox and the extensive reference made to it in current decision theory. But Savage’s reaction to his critics has never been examined. Although Savage never really engaged with the issue in his published writings, the private exchange with Ellsberg and Fellner, and with de Finetti about how to deal with Smith, shows that Savage’s attention to the generalization advocated by his correspondents was substantive. In particular, Savage’s defence of the normative value of his theory against counterexamples such as Ellsberg’s did not prevent him from admitting that he would give careful consideration to a more realistic axiomatic system, should the critics be able to provide one.
Note: This draft of the paper, preliminary to that accepted for publication in JHET, was presented at the D-TEA Workshop held at the Paris School of Economics (June 2019) and at the HES Annual Meeting held at Columbia University (June 2019). Comments by Marcello Basili, George Bent, Alain Chateauneuf, Robert Dimand, Alberto Feduzi, David Glasner, Itzhak Gilboa, Philippe Mongin, Aldo Montesano, Enrico Petracca, Jochen Runde, Sam Savage, Francesco Sergi and two anonymous referees are gratefully acknowledged. Although his recollections of the details of his meetings with Savage are sparse, Daniel Ellsberg’s suggestions were of fundamental importance. Usual caveats apply.
Keywords: decision-making, uncertainty, Ellsberg Paradox, Leonard J. Savage
JEL Classification: B21, C18, D81
Suggested Citation: Suggested Citation