Abraham Wald's Complete Class Theorem and Knightian Uncertainty

16 Pages Posted: 18 Feb 2015 Last revised: 30 Jun 2017

See all articles by Christoph Kuzmics

Christoph Kuzmics

University of Graz - Department of Economics

Date Written: June 27, 2017

Abstract

I study the implications of Abraham Wald's (1947) complete class theorem for decision making under Knightian uncertainty (or ambiguity). Suppose we call someone who uses Wald's approach to statistical decision making a Waldian. A Waldian may then have preferences over acts that are not in agreement with subjective expected utility but always chooses as if she was a subjective expected utility maximizer. In particular, even Wald's (1945) minmax decision rule is consistent with subjective expected utility.

Keywords: ambiguity, decision theory, Knightian uncertainty, experimental design

JEL Classification: C72, C81, C90, D01, D03, D81

Suggested Citation

Kuzmics, Christoph, Abraham Wald's Complete Class Theorem and Knightian Uncertainty (June 27, 2017). Available at SSRN: https://ssrn.com/abstract=2566246 or http://dx.doi.org/10.2139/ssrn.2566246

Christoph Kuzmics (Contact Author)

University of Graz - Department of Economics ( email )

Universitaetsstrasse 15
RESOWI - F4
Graz, 8010
Austria

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