Is It Always Rational to Satisfy Savage's Axioms?

I. GILBOA, A. Postlewaite, D. Schmeidler

Economics and Philosophy

November 2009, vol. 25, n°3, pp.285-297

Departments: Economics & Decision Sciences, GREGHEC (CNRS)

This note argues that, under some circumstances, it is more rational not to behave in accordance with a Bayesian prior than to do so. The starting point is that in the absence of information, choosing a prior is arbitrary. If the prior is to have meaningful implications, it is more rational to admit that one does not have sufficient information to generate a prior than to pretend that one does. This suggests a view of rationality that requires a compromise between internal coherence and justification, similarly to compromises that appear in moral dilemmas. Finally, it is argued that Savage's axioms are more compelling when applied to a naturally given state space than to an analytically constructed one; in the latter case, it may be more rational to violate the axioms than to be BayesianStudies, Economic theory, Probability, Philosophy