Savage vs. Wald: Was Bayesian Decision Theory the Only Available Alternative for Postwar Economics?
37 Pages Posted: 22 Jun 2006
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: Suggested Citation