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On the Rejectability of the Subjective Expected Utility Theory

Konrad Grabiszewski
Published Online: 2016-06-02 | DOI: https://doi.org/10.1515/bejte-2015-0074


State space, a key element of the Subjective Expected Utility (SEU) theory, is not observable. This implies that, in order to test the SEU theory, it is necessary to assume some state space. Consequently, if the SEU theory is rejected, then it is appropriate to conduct a robustness check; that is, to search for a different state space and a probability over that state space which together do not lead to the rejection of the SEU theory. To find such state space and probability means to SEU-rationalize the agent’s behavior. I show how to conduct the process of SEU-rationalization and determine when an SEU-rationalization is possible.

Keywords: SEU theory; state space; SEU-rationalization

JEL: D01; D03; D81


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About the article

Published Online: 2016-06-02

Published in Print: 2016-06-01

Citation Information: The B.E. Journal of Theoretical Economics, Volume 16, Issue 2, Pages 437–454, ISSN (Online) 1935-1704, ISSN (Print) 2194-6124, DOI: https://doi.org/10.1515/bejte-2015-0074.

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