Foundations of Bayesian Theory

This paper states necessary and sufficient conditions for the existence, uniqueness, and updating according to Bayes?rule, of subjective probabilities representing individuals?beliefs. The approach is preference based, and the result is an axiomatic subjective expected utility model of Bayesian decision making under uncertainty with statedependent preferences. The theory provides foundations for the existence of prior probabilities representing decision makers?beliefs about the likely realization of events and for the updating of these probabilities according to Bayes?rule.

A Theory of Bayesian Decision Making

This paper presents a complete, choice-based, axiomatic Bayesian decision theory. It introduces a new choice set consisting of information-contingent plans for choosing actions and bets and subjective expected utility model with effect-dependent utility functions and action-dependent subjective probabilities which, in conjunction with the updating of the probabilities using Bayes' rule, gives rise to a unique prior and a set of action-dependent posterior probabilities representing the decision maker's prior and posterior beliefs.

Objective and Subjective Expected Utility with Incomplete Preferences

This paper extends the expected utility models of decision making under risk and under uncertainty to include incomplete beliefs and tastes. The main results are two axiomatizations of the multi-prior expected multi-utility representations of preference relation under uncertainty, thereby resolving long standing open questions. The Knightian uncertainty model and expected multi-utility model with complete beliefs are obtained as special cases. In addition, the von Neumann-Morgenstern expected utility model with incomplete preferences is revisited using a "constructive" approach, as opposed to earlier treatments that use convex analysis.

Moral Sentiments and Social Choice: Fairness Considerations in University Admissions

We examine the implications for social choice of individuals having an intrinsic sense of fairness. Taking the viewpoint that social justice reflects the moral attitudes of the constituent members, we analyze the effect of the intensity of the individual sense of fairness on university admission policies. Assuming that these policies are determined by bargaining over test scores to be used as cut-off points for admission of members of diverse social groups show that, in general, a more intense sense of fairness of the members of a group leads to an admission policy that is more compatible with their idea of fairness. Consequently, a society whose members have a common notion tends to implement fairer admission policies when the intensity of the sense of fairness of individual memebrs increase. This is even if the policies are ultimately determined by the bargaining power of the different groups.

States of nature and the nature of states

This paper discusses the definition of the state space and corresponding choice sets that figure in the theory of decision making under uncertainty. It elucidates an approach that overcomes some conceptual difficulties with the standard models and accommodates a procedure for expanding the state space in the wake of growing awareness

Optimal unemployment insurance : a guide to the literature

Unemployment insurance has been the subject of numerous theoretical and empirical studies. These studies elucidate the benefits and the cost of unemployment insurance, namely, the improved allocation of risk bearing and the reduced incentives for work. In the past two decades a branch of the literature has emerged that deals with the optimal design of unemployment insurance. This literature has been influenced by ideas and methods from the field of information economics and theories from the field of labor economics. The result is a collection of models designed to highlight a variety of issues pertaining to the provision of optimal unemployment insurance. This report reviews these issues, summarizes the relevant literature, assesses its accomplishments, and points out problems that require further study.Economic Theory&Research,Environmental Economics&Policies,Health Monitoring&Evaluation,Health Economics&Finance,Banks&Banking Reform

Ambiguity Attitudes and Social Interactions: An Experimental Investigation

This paper reports the results of experiments designed to test (a) whether and to what extent individuals display non-neutral ambiguity attitudes in their choice behavior and (b) if and how do ambiguity attitudes change as a result of interpersonal interactions and persuasion. To address the first question we designed and conducted experiments involving individual choice between betting on ambiguous and unambiguous events of their choice. We found that a large majority of subjects display ambiguity-neutral attitudes, many others display ambiguity-incoherent attitudes, and few subjects display either ambiguity-averse attitudes or ambiguity-seeking attitudes. To address the second question we introduced a new experimental design with a built-in incentive to persuade. We found that interpersonal interactions without incentive to persuade have no effect on behavior, but when incentives were introduced, the ambiguity-neutral subjects were better able to persuade ambiguity seeking and ambiguity-incoherent subjects to follow ambiguity-neutral choice behavior. No such influence was detected with respect to ambiguity-neutral subjects.

A Theory of Quantifiable Beliefs

Building upon the works of Anscombe and Aumann (1963) and Karni and Schmeidler (1981), we develop a general axiomatic theory of quantifiable beliefs - a form of probabilistic sophistication that does not preclude state-dependent preferences and does not require the reduction of compound lotteries. The theory includes the state-dependent expected utility model of Karni and Schmeidler (1981) and the state-independent non-expected utility model of Machina and Schmeidler (1995) as specific example of this recursive class is shown to be compatible with a quantifiable beliefs version of Schmeidler's (1989) Choquet expected utility maximizing model and thus capable of rationalizing Ellsberg-paradox type behavior

A theory of stochastic choice under uncertainty

In this paper we propose a characterization of stochastic choice under risk and under uncertainty. We presume that decision makers' actual choices are governed by randomly selected states of mind, and study the representation of decision makers' perceptions of the stochastic process underlying the selection of their state of mind. The connections of this work to the literatures on random choice, choice behavior when preference are incomplete; choice of menus; and grades of indecisiveness are also discussed

Continuity, completeness, betweenness and cone-monotonicity

A non-trivial, transitive and reflexive binary relation on the set of lotteries satisfying independence that also satisfies any two of the following three axioms satisfies the third: completeness, Archimedean and mixture continuity (Dubra (2011)). This paper generalizes Dubra's result in two ways: First, by replacing independence with a weaker betweenness axiom. Second, by replacing independence with a weaker cone-monotonicity axiom. The latter is related to betweenness and, in the case in which outcomes correspond to real numbers, implies monotonicity with respect to first-order stochastic dominance