Results 1  10
of
23
From decision theory to decision aiding methodology (my very personal version of this history and some related reflections)
, 2003
"... ..."
De Finetti Was Right: Probability Does Not Exist
, 2001
"... De Finetti's treatise on the theory of probability begins with the provocative statement PROBABILITY DOES NOT EXIST, meaning that probability does not exist in an objective sense. Rather, probability exists only subjectively within the minds of individuals. De Finetti defined subjective probabilitie ..."
Abstract

Cited by 16 (9 self)
 Add to MetaCart
De Finetti's treatise on the theory of probability begins with the provocative statement PROBABILITY DOES NOT EXIST, meaning that probability does not exist in an objective sense. Rather, probability exists only subjectively within the minds of individuals. De Finetti defined subjective probabilities in terms of the rates at which individuals are willing to bet money on events, even though, in principle, such betting rates could depend on statedependent marginal utility for money as well as on beliefs. Most later authors, from Savage onward, have attempted to disentangle beliefs from values by introducing hypothetical bets whose payoffs are abstract consequences that are assumed to have stateindependent utility. In this paper, I argue that de Finetti was right all along: PROBABILITY, considered as a numerical measure of pure belief uncontaminated by attitudes toward money, does not exist. Rather, what exist are de Finetti's "previsions," or betting rates for money, otherwise known in the literature as "risk neutral probabilities." But the fact that previsions are not measures of pure belief turns out not to be problematic for statistical inference, decision analysis, or economic modeling.
2001a), A Generalization of PrattArrow Measure to NonExpectedUtility Preferences and Inseparable Probability and Utility. Working paper, Fuqua School of Business
 Preferences And Inseparable Probability And Utility. Management Science 49:8, 1089
, 2003
"... The PrattArrow measure of local risk aversion is generalized for the ndimensional statepreference model of choice under uncertainty in which the decision maker may have inseparable subjective probabilities and utilities, unobservable stochastic prior wealth, and/or smoothnonexpectedutility prefe ..."
Abstract

Cited by 12 (7 self)
 Add to MetaCart
The PrattArrow measure of local risk aversion is generalized for the ndimensional statepreference model of choice under uncertainty in which the decision maker may have inseparable subjective probabilities and utilities, unobservable stochastic prior wealth, and/or smoothnonexpectedutility preferences. Local risk aversion is measured by the matrix of derivatives of the decision maker’s riskneutral probabilities, without reference to true subjective probabilities or riskless wealthpositions, and comparative risk aversion is measured without requiring agreement on true probabilities. Riskneutral probabilities and their derivatives are shown to be sufficient statistics for approximately optimal investment and financing decisions in complete markets for contingent claims.
The Shape of Incomplete Preferences
, 1993
"... The emergence of robustness as an important consideration in Bayesian statistical models has led to a renewed interest in normative models of incomplete preferences represented by imprecise (setvalued) probabilities and utilities. ..."
Abstract

Cited by 12 (4 self)
 Add to MetaCart
The emergence of robustness as an important consideration in Bayesian statistical models has led to a renewed interest in normative models of incomplete preferences represented by imprecise (setvalued) probabilities and utilities.
Forthcoming in Advances in Decision Analysis: From Foundations to Applications
"... Abstract: The subjective expected utility (SEU) model rests on very strong assumptions about the consistency of decision making across a wide range of situations. The descriptive validity of these assumptions has been extensively challenged by behavioral psychologists during the last few decades, an ..."
Abstract

Cited by 6 (0 self)
 Add to MetaCart
Abstract: The subjective expected utility (SEU) model rests on very strong assumptions about the consistency of decision making across a wide range of situations. The descriptive validity of these assumptions has been extensively challenged by behavioral psychologists during the last few decades, and the normative validity of the assumptions has also been reappraised by many statisticians, philosophers, and economists, motivating the development of more general utility theories and decision models. These generalized models are characterized by features such as imprecise probabilities, nonlinearly weighted probabilities, sourcedependent risk attitudes, and statedependent utilities, permitting the pattern of the decision maker’s behavior to change with the decision context and to perhaps satisfy the usual SEU assumptions only locally. Recent research in the emerging field of neuroeconomics sheds light on the physiological basis of decision making, the nature of preferences and beliefs, and interpersonal differences in decision competence. These findings do not necessarily invalidate the use of SEUbased decision analysis tools, but they suggest that care needs to be taken to structure preferences and to assess beliefs and risk attitudes in a manner that is appropriate for the decision and also for the decision maker. Key words: subjective probability, expected utility, nonexpected utility, Savage's axioms, surething
Compact Securities Markets for Pareto Optimal Reallocation of Risk
, 2000
"... The securities market is the fundamental theoretical framework in economics and finance for resource allocation under uncertainty. Securities serve both to reallocate risk and to disseminate probabilistic information. Complete securities marketswhich contain one security for every possible ..."
Abstract

Cited by 5 (4 self)
 Add to MetaCart
The securities market is the fundamental theoretical framework in economics and finance for resource allocation under uncertainty. Securities serve both to reallocate risk and to disseminate probabilistic information. Complete securities marketswhich contain one security for every possible state of naturesupport Pareto optimal allocations of risk. Complete markets suffer from the same exponential dependence on the number of underlying events as do joint probability distributions. We examine whether markets can be structured and "compacted" in the same manner as Bayesian network representations of joint distributions. We show that, if all agents' riskneutral independencies agree with the independencies encoded in the market structure, then the market is operationally complete: risk is still Pareto optimally allocated, yet the number of securities can be exponentially smaller. For collections of agents of a certain type, agreement on Markov independencies is su...
A Market Framework for Pooling Opinions
, 1998
"... Consider a group of Bayesians, each with a subjective probability distribution over a set of uncertain events. An opinion pool derives a single consensus distribution over the events, representative of the group as a whole. Several pooling functions have been proposed, each sensible under particular ..."
Abstract

Cited by 4 (4 self)
 Add to MetaCart
Consider a group of Bayesians, each with a subjective probability distribution over a set of uncertain events. An opinion pool derives a single consensus distribution over the events, representative of the group as a whole. Several pooling functions have been proposed, each sensible under particular assumptions or measures. Many researchers over many years have failed to form a consensus on which method is best. We propose a marketbased pooling procedure, and analyze its properties. Participants bet on securities, each paying off contingent on an uncertain event, so as to maximize their own expected utilities. The consensus probability of each event is defined as the corresponding security's equilibrium price. The market framework provides explicit monetary incentives for participation and honesty, and allows agents to maintain individual rationality and limited privacy. "No arbitrage" arguments ensure that the equilibrium prices form legal probabilities. We show that, when events are...
Disagreement as SelfDeception About MetaRationality
 Department of Mechanical and Aerospace Engineering, Princeton University
, 2001
"... Honest truthseeking agents, Bayesian and otherwise, should not agree to disagree. This result is robust to many perturbations. Such agents are "metarational" when they are aware of and act on this result. The ubiquity of disagreement, however, suggests that very few people, academics included, are ..."
Abstract

Cited by 1 (0 self)
 Add to MetaCart
Honest truthseeking agents, Bayesian and otherwise, should not agree to disagree. This result is robust to many perturbations. Such agents are "metarational" when they are aware of and act on this result. The ubiquity of disagreement, however, suggests that very few people, academics included, are justified in thinking ourselves to be very metarational. We are instead selfdeceived in thinking ourselves to be more metarational than others. Since alerting us to this fact does not much change our behavior, we must not really want to know the truth, or simply cannot be any other way. 3 I.
Eliciting Objective Probabilities via Lottery Insurance Games
 Computational Mathematics Laboratory, Rice University
, 1993
"... Since utilities and probabilities jointly determine choices, eventdependent utilities complicate the elicitation of subjective event probabilities. However, for the usual purpose of obtaining the information embodied in agent beliefs, it is su#cient to elicit objective probabilities, i.e., proba ..."
Abstract

Cited by 1 (1 self)
 Add to MetaCart
Since utilities and probabilities jointly determine choices, eventdependent utilities complicate the elicitation of subjective event probabilities. However, for the usual purpose of obtaining the information embodied in agent beliefs, it is su#cient to elicit objective probabilities, i.e., probabilities obtained by updating a known common prior with that agent's further information. Bayesians who play a Nash equilibrium of a certain insurance game before they obtain relevant information will afterward act regarding lottery ticket payments as if they had eventindependent riskneutral utility and a known common prior. Proper scoring rules paid in lottery tickets can then elicit objective probabilities.
Subjective Probabilities on a State Space
, 2010
"... This paper extends the work of Karni (2009) in two distinct directions. First, it generalizes the model allowing for actionbet interaction and, consequently, the possibility that the decisionmaker’s risk attitudes may be affected by his choice of action. Second, it extends the analytical framework ..."
Abstract

Cited by 1 (0 self)
 Add to MetaCart
This paper extends the work of Karni (2009) in two distinct directions. First, it generalizes the model allowing for actionbet interaction and, consequently, the possibility that the decisionmaker’s risk attitudes may be affected by his choice of action. Second, it extends the analytical framework to include a state space and advances a choicebased definition of subjective probabilities that represent the beliefs of Bayesian decision makers regarding the likelihoods of events, thus resolving a fundamental difficultywiththedefinition of subjective probabilities. ∗I grateful to Jacques Drèze and Brian Hill for their comments on an earlier draft of this paper and to Efe Ok and Marco Scarcini for enlightening conversations and useful suggestions.