Rationality under uncertainty: classic and current criticisms of the Bayesian viewpoint

Abstract

Savage developed further this idea of extending logic, providing the "as if" justification for EU maximisation even under uncertainty. After Savage's axiomatization, at least among decision theorists, but increasingly in the entire economics profession, rationality has been equated with a theory prescribing what individuals should do in view of a series of foundational axioms. This normative turn in decision theory-emphasizing the prescriptive component of theoretical analysis and moving beyond the normative as an ethically motivated viewpoint (Hands 2015)-incorporates a specific notion of rationality. Rationality has been associated with the idea of behaving in a consistent way, regardless of the actual content of the decision to be made, and the decision theoretic approach built on it has been termed Bayesian. 1 The view that rationality implies Bayesianism has been put under scrutiny in recent years. A main line of research criticizing this view has concentrated on the need to incorporate behavioural assumptions, given the overwhelming evidence suggesting that the Bayesian approach is descriptively inadequate. The prototype behavioural theory, Kahneman and Tversky's (1979) prospect theory, was presented as an alternative formal theory of behaviour intended to describe the choices that individuals actually make. Yet, it was not proposed as a substitute for the normative mainstream, and much of the following behavioural economics literature has not aimed at a new normative ideal either (Kahneman and Thaler 2006). As repeatedly noted in the literature, prospect theory did not intend to challenge the normative value of Bayesian decision theory (Heukelom 2014). standard for choice under uncertainty. 2 And although such a literature of non-Bayesian models, also referred to as "ambiguity aversion models," has been criticized in its turn-see in particular Al-Najjar and Weinstein (2009) and Hammond and Zank (2014)-it is of special prominence in the contemporary debate on rational choice theory. This perspective, criticizing the normative value of the Bayesian viewpoint, has emerged from an analysis of the so-called Ellsberg Paradox. As we shall see, urn examples of the kind suggested by Daniel Ellsberg (1961) evidenced the inability of a significant number of "reasonable" decisionmakers to commit to a sharp probability function, specifically violating the additive property of the probability function that Bayesians assume can always be elicited from choices. Ellsberg suggested that these violations are "deliberate," and that they challenge the prescriptive, rather than the descriptive, content of the underlying choice theory. But while the Ellsberg Paradox is amply referred to in the current literature-indeed it is the starting point of most studies addressing decision under uncertainty-there usually is no analysis of the kind of criticism Ellsberg made to Savage, in what can be characterized as the first, classic criticism of the Bayesian viewpoint. This paper provides a comparison of Gilboa's current critique of Baye...

Ellsberg 1961: text, context, influence

“…More details about Ellsberg's biography inEllsberg (2002Ellsberg ( , 2006Ellsberg ( , 2011. Among historians of economics, Carlo Zappia has extensively written on Ellsberg; see in particularZappia (2016Zappia ( , 2018Zappia ( , 2021a.…”