Savage vs. Wald: Was Bayesian Decision Theory the Only Available Alternative for Postwar Economics?

37 Pages Posted: 22 Jun 2006

See all articles by Nicola Giocoli

Nicola Giocoli

University of Pisa - Department of Law

Date Written: June 2004

Abstract

The paper compares the two main approaches to decision-making under uncertainty in the early 1950s, Wald's minimax theory (Wald 1950) and Savage's subjective expected utility theory (Savage 1954), from the viewpoint of postwar neoclassical economics. It is argued that, while obvious reasons led to the success of Savage's approach - the main one being of course its dependence upon the familiar notion of utility maximization - the latter also entailed a significant change in the traditional neoclassical representation of rational behavior, in particular as far as the role of subjectivism and of consistency restrictions were concerned. Despite its severe limitations, Wald's approach was instead immune from these shortcomings and pointed at an "objectivization" of decision-making.

Keywords: Baysianism, Savage, Wald, postwar economics, decision theory

JEL Classification: B21, D81

Suggested Citation

Giocoli, Nicola, Savage vs. Wald: Was Bayesian Decision Theory the Only Available Alternative for Postwar Economics? (June 2004). Available at SSRN: https://ssrn.com/abstract=910916 or http://dx.doi.org/10.2139/ssrn.910916

Nicola Giocoli (Contact Author)

University of Pisa - Department of Law ( email )

via Collegio Ricci 10
Pisa PI, 56126
Italy

HOME PAGE: http://https://pisa.academia.edu/NicolaGiocoli

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