Objective and subjective rationality in a multiple prior model

Itzhak Gilboa*, Fabio Maccheroni, Massimo Marinacci, David Schmeidler

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

132 Scopus citations

Abstract

A decision maker (DM) is characterized by two binary relations. The first reflects choices that are rational in an " objective" sense: the DM can convince others that she is right in making them. The second relation models choices that are rational in a " subjective" sense: the DM cannot be convinced that she is wrong in making them.In the context of decision under uncertainty, we propose axioms that the two notions of rationality might satisfy. These axioms allow a joint representation by a single set of prior probabilities and a single utility index. It is " objectively rational" to choose f in the presence of g if and only if the expected utility of f is at least as high as that of g given each and every prior in the set. It is " subjectively rational" to choose f rather than g if and only if the minimal expected utility of f (with respect to all priors in the set) is at least as high as that of g. In other words, the objective and subjective rationality relations admit, respectively, a representation à la Bewley (2002) and à la Gilboa and Schmeidler (1989). Our results thus provide a bridge between these two classic models, as well as a novel foundation for the latter.

Original languageEnglish
Pages (from-to)755-770
Number of pages16
JournalEconometrica
Volume78
Issue number2
DOIs
StatePublished - Mar 2010

Funding

FundersFunder number
Seventh Framework Programme230367

    Keywords

    • Multiple priors
    • Rationality

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