Probability and uncertainty in economic modeling

I. GILBOA, A. Postlewaite, D. Schmeidler

Journal of Economic Perspectives

Summer 2008, vol. 22, n°3, pp.173-188

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

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 us characterize situations in which entertaining such beliefs is neither realistic nor necessarily rational.