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Objective rationality foundations for (dynamic) α-MEU

Author

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  • Frick, Mira
  • Iijima, Ryota
  • Le Yaouanq, Yves
Abstract
We show how incorporating Gilboa et al.'s (2010) notion of objective rationality into the α-MEU model of choice under ambiguity 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.

Suggested Citation

  • Frick, Mira & Iijima, Ryota & Le Yaouanq, Yves, 2022. "Objective rationality foundations for (dynamic) α-MEU," Journal of Economic Theory, Elsevier, vol. 200(C).
    • Handle: RePEc:eee:jetheo:v:200:y:2022:i:c:s0022053121002118
    DOI: 10.1016/j.jet.2021.105394
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    2. Lorenzo Bastianello & José Heleno Faro & Ana Santos, 2022. "Dynamically consistent objective and subjective rationality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(2), pages 477-504, September.
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    More about this item

    Keywords

    Ambiguity; α-MEU; Objective rationality; Updating;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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