K. Binmore, Rational Decisions (Economics and Philosophy)

In the history of decision theory Daniel Ellsberg is known because his seminal paper " Risk, ambiguity and the Savage axioms " presented the counterexample to Bayesian decision-making that got the normative value of the theory into trouble. An assessment of Ellsberg's contribution in the more encompassing framework of his long unnoticed 1962 doctoral thesis suggests that, although he did not take part to the ensuing debate, Ellsberg provided a thorough philosophical and methodological background for his critique of Savage's axiomatization of decision theory. By concentrating mainly on Ellsberg's analysis of decision-making in his thesis, this paper examines the way he conceived of the possibility to test normative propositions and tries to identify the kind of normative value he attributed to his own suggested solution for the Ellsberg Paradox.

Metroeconomica, 2009

The paper discusses the role of George L.S. Shackle in fostering an unconventional approach to individual decision making. Up until the early 1970s Shackle was the single critic of the probabilistic approach to decision making who proposed an alternative formal corpus for dealing with uncertainty. The main aim of the paper is to analyse Shackle's non-probabilistic conceptualization of individual decisions under uncertainty from a specific viewpoint, namely that of a possible connection between his theory and one of the most interesting recent approaches to decision under uncertainty, the so-called non-additive probability approach of Gilboa and Schmeidler. The paper shows that these developments in modern decision theory take Shackle's issue seriously and confirm that the reliance of strict Bayesian theory on probabilistic judgements based on point-probability estimates, a reliance that Shackle intended to oppose, is untenable. Non-additive decision theory also provides a usage of non-additive probability distributions in choice that is an alternative to Shackle's approach of using a qualitative notion of probability, such as potential surprise. two anonymous referees are gratefully acknowledged. The usual disclaimer applies.

Even though Daniel Ellsberg's 1961 article "Risk, ambiguity and the Savage axioms" is well-known and increasingly quoted in current decision theory, introducing the counterexample to Bayesian decision-making that got the normative value of Savage's theory into trouble, its philosophical background remains totally unknown. This paper examines Ellsberg's motivations in presenting his critique first to his fellow decision theorists at Harvard and RAND in the late 1950s and it goes into his reasons for giving a philosophical justification and defence of the paradox in his doctoral thesis of 1962. By concentrating mainly on Ellsberg's all-encompassing analysis of decision-making in his thesis, the paper shows that a number of relevant issues connected to the paradox can be thrown light on. These range from its historical background to the way to test the normative value of decision theory through experiments, and a taxonomy of decision rules based on alternative probabilistic set-ups. Crucially, the paper argues that Ellsberg subscribed to a generalised version of the Bayesian approach, one that informs the developments of the multiple prior approach in current decision theory, but finds its origins in Keynes's Treatise on Probability.

The Economic Journal, 2010

SSRN Electronic Journal, 2000

This paper discusses the evolution of decision theory after Savage's Foundations. Two developments are examined. First, it is presented the rationale of Shackle's proposal to abandon probabilistic decision making. Second, it is discussed the axiomatisation provided by the nonadditive probability approach to account for the experimental evidence originated by the Ellsberg

SSRN Electronic Journal, 2000

This paper assesses the rationale of George Shackle's argument against Bayesian decision making in the light of recent developments of modern decision theory. The focus is on the so-called non-additive probability approach to decision theory under uncertainty, which, not unlike Shackle's analysis, stresses the inability of agents to describe uncertain environments. A discussion of the pros and cons of the parallel between Shackle's theory and the non-additive developments is provided.

2009

We review recent advances in the field of decision making under uncertainty or ambiguity.

2004

The paper compares the two main approaches to decision-making under uncertainty in the early 1950s, Wald's minimax theory (Wald 1950) and Savage's subjective expected utility theory (Savage 1954), from the viewpoint of postwar neoclassical economics. It is argued that, while obvious reasons led to the success of Savage's approach - the main one being of course its dependence upon the familiar notion of utility maximization - the latter also entailed a significant change in the traditional neoclassical representation of rational behavior, in particular as far as the role of subjectivism and of consistency restrictions were concerned. Despite its severe limitations, Wald's approach was instead immune from these shortcomings and pointed at an "objectivization" of decision-making.

Economic modeling assumes, for the most part, that agents are Bayesian, that is, that they entertain probabilistic beliefs, objective or subjective, regarding any event in question. We argue that the formation of such beliefs calls for a deeper examination and for explicit modeling. Models of belief formation may enhance our understanding of the probabilistic beliefs when these exist, and may also help up characterize situations in which entertaining such beliefs is neither realistic nor necessarily rational.

G.L.S Shackle’s rejection of the probability tradition stemming from Knight's definition of uncertainty was a crucial episode in the development of modern decision theory. A set of methodological statements characterizing Shackle’s stance, abandoned for long, especially after Savage’s Foundations, have been re-discovered and are at the basis of current non-expected utility theories, in particular of the non-additive probability approach to decision making. This paper examines the discussion between Shackle and his critics in the 1950s. Drawing on Shackle’s papers housed at Cambridge University Library as well as on printed matter, we show that some critics correctly understood two aspects of Shackle’s theory which are of the utmost importance in our view: the non-additive character of the theory and the possibility of interpreting Shackle’s ascendancy functions as a specific distortion of the weighting function of the decision maker. It is argued that Shackle neither completely ...