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Frick, Mira; Iijima, Ryota and Le Yaouanq, Yves (2022): Objective rationality foundations for (dynamic) alpha-MEU. In: Journal of Economic Theory, Vol. 200, 105394

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We show how incorporating Gilboa et al.'s (2010) notion of objective rationality into the a-MEU model of choice under ambiguity can overcome several challenges faced by the baseline model without objective rationality. The decision-maker (DM) has a subjectively rationalpreference greater than or similar to(Lambda)which captures the complete ranking over acts the DM expresses when forced to make a choice;in addition, we endow the DM with a (possibly incomplete) objectively rationalpreference greater than or similar to*, which captures the rankings the DM deems uncontroversial. Under the objectively founded alpha-MEU model, greater than or similar to(Lambda) has an a-MEU representation and greater than or similar to* has a unanimity representation a la Bewley (2002), where both representations feature the same utility index and set of beliefs. While the axiomatic foundations of the baseline a-MEU model are still not fully understood, we provide a simple characterization of its objectively founded counterpart. Moreover, in contrast with the baseline model, the model parameters are uniquely identified. Finally, we provide axiomatic foundations for prior-by-prior Bayesian updating of the objectively founded a-MEU model, while we show that, for the baseline model, standard updating rules can be ill-defined.

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