Objective rationality foundations for (dynamic) α-MEU

Arbeitspapier

We show how incorporating Gilboa, Maccheroni, Marinacci, and Schmeidler's (2010) notion of objective rationality into the α-MEU model of choice under ambiguity (Hurwicz, 1951) can overcome several challenges faced by the baseline model without objective rationality. The decision-maker (DM) has a subjectively rational preference ≥^, which captures the complete ranking over acts the DM expresses when forced to make a choice; in addition, we endow the DM with a (possibly incomplete) objectively rational preference ≥*, which captures the rankings the DM deems uncontroversial. Under the objectively founded α-MEU model, ≥^ has an α-MEU representation and ≥* has a unanimity representation à la Bewley (2002), where both representations feature the same utility index and set of beliefs. While the axiomatic foundations of the baseline α-MEU model are still not fully understood, we provide a simple characterization of its objectively founded counterpart. Moreover, in contrast with the baseline model, the model parameters are uniquely identified. Finally, we provide axiomatic foundations for prior-by-prior Bayesian updating of the objectively founded α-MEU model, while we show that, for the baseline model, standard updating rules can be ill-defined.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper ; No. 252

Classification and Topics

• Classification: Wirtschaft
• Subject: ambiguity ; α-MEU ; objective rationality ; updating

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Frick, Mira ; Iijima, Ryota ; Le Yaouanq, Yves
• Event: Veröffentlichung
• (who): Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition
• (where): München und Berlin
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/222619
• Last update: 10.03.2025, 11:42 AM CET