The paradox of the Bayesian experts and state-dependent utility theory

Abstract

When n individuals satisfy the axioms of subjective expected utility (SEU) theory and these individuals' probabilities or/and utilities are sufficiently diverse, it is impossible to aggregate the individuals' preferences into a ( n+1)-preference which is both Paretian and in agreement with SEU theory. The paper restates this paradox in the framework of Anscombe and Aumann's axiomatization of SEU and investigates the consequences of relaxing their state-independence assumption. The paradox disappears from the pure state-dependent framework but reappears in a different form in a sophisticated variant of state-dependent utility theory which achieves the uniqueness of subjective probabilities. The paper compares this novel impossibility result with the earlier one. It concludes by discussing the foundations of the Pareto principle in both the ex ante and ex post versions.