Case-Based Decision Theory—An Outline
The bulk of economic theory assumes “rational” agents interacting in an economic environment. The precise meaning of “rationality” varies from one model to another. It is almost always assumed that the decision maker is (at least implicitly) aware of all the options available to him/her, and is (“as-if”) optimizing some utility function. In the presence of uncertainty “rationality” is typically assumed to also mean expected-utility maximization a la Savage (1954). That is, the economic agent is further assumed to entertain beliefs in the form of a probability measure, to maximize expected utility with respect to this measure, and often also to update the probability in the face of new information according to Bayes’rule. At times, “rationality” is stretched even further to imply that different economic agents would have the same beliefs (“priors”) and that their choices would constitute and equilibrium of some sort.
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