On June 19, 2017, 13.00-14.00, Dr. Jean Baccelli (Munich Center for Mathematical Philosophy, http://jeanbaccelli.weebly.com) will give a talk on “Measuring Beliefs by Observing Choices”
Consider the following claim. By observing how a decision-maker bets on some events of interest, one can identify the beliefs which she holds about the respective likelihood of these events. This claim is central to contemporary decision theory, as developed by Savage and followers. It can also be related to the so-called “revealed preference” methodology prevailing in economics.
I will focus on one general problem for the identification strategy underlying this claim: the problem of so-called “state-dependent utility”.
State-dependent utility obtains when the preferences of the decision-maker vary with the events of interest. Such variations are testified most clearly out of decision theory, e.g. in the economics of insurance. They give rise to a problem, inasmuch as they complicate the identification of the beliefs of the decision-maker, based solely on the observation of her betting behavior.
I will offer a systematic presentation and discussion of the problem of state-dependent utility, thus understood. I will show that taking this problem into account leads one to reject the claim above, to the effect that the betting behavior of a decision-maker identifies her underlying beliefs. I will highlight the significance of this rejection for a critical appraisal of the revealed preference methodology prevailing in economics.
Paper PDF –> Baccelli Bets Beliefs