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Moral Hazard, the Savage Framework, and State-dependent Utility

Baccelli, Jean (2019) Moral Hazard, the Savage Framework, and State-dependent Utility. [Preprint]

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Abstract

In this paper, I investigate the betting behavior of a decision-maker who can influence the likelihood of the events upon which she is betting. In decision theory, this is best known as a situation of moral hazard. Focusing on a particularly simple case, I sketch the first systematic analysis of moral hazard in the canonical Savage framework. From the results of this analysis, I draw two philosophical conclusions. First, from an observational and a descriptive point of view, there need to be no incompatibility between moral hazard and the Savage framework. This qualifies the incompatibility view, that is ubiquitous in decision theory. Second, in general, moral hazard is not sufficient to overcome the challenges posed by state-dependent utility to the behavioral identification of beliefs. This qualifies the sufficiency view, that is influential in decision theory. These two philosophical conclusions are the main contributions of my paper.


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Item Type: Preprint
Creators:
CreatorsEmailORCID
Baccelli, Jeanjean.baccelli@gmail.com0000-0003-0275-0377
Keywords: decision theory, decision theory under uncertainty, subjective probability, state-dependent utility, moral hazard, revealed preference, multiple-prior model, philosophy of economics
Subjects: General Issues > Decision Theory
Specific Sciences > Economics
General Issues > Game Theory
Specific Sciences > Psychology > Judgment and Decision Making
General Issues > Logical Positivism/Logical Empiricism
General Issues > Operationalism/Instrumentalism
Specific Sciences > Probability/Statistics
Specific Sciences > Psychology
Depositing User: Jean Baccelli
Date Deposited: 17 Jul 2019 03:40
Last Modified: 17 Jul 2019 03:40
Item ID: 16227
Official URL: https://link.springer.com/article/10.1007%2Fs10670...
DOI or Unique Handle: 10.1007/s10670-019-00108-3
Subjects: General Issues > Decision Theory
Specific Sciences > Economics
General Issues > Game Theory
Specific Sciences > Psychology > Judgment and Decision Making
General Issues > Logical Positivism/Logical Empiricism
General Issues > Operationalism/Instrumentalism
Specific Sciences > Probability/Statistics
Specific Sciences > Psychology
Date: 2019
URI: http://philsci-archive.pitt.edu/id/eprint/16227

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