Bayesian Decision Theory and the Representation of Beliefs

Authors: 
Edi Karni
Abstract: 

In this paper, I present a Bayesian decision theory and define choice-based subjective probabilities that faithfully represent Bayesian decision makers’ prior and posterior beliefs regarding the likelihood of the possible effects contingent on his actions. I argue that no equivalent results can be obtained in Savage’s (1954) subjective expected utility theory and give an example illustrating the potential harm caused by ascribing to a decision maker subjective probabilities that do not represent his beliefs.

Date: 
January, 2007
Published in: 
Number: 
444