Theory Of Rational Belief Research Articles

Reasoning Without the Conjunction Closure

AbstractSome theories of rational belief assume that beliefs should be closed under conjunction. I motivate the rejection of the conjunction closure, and point out that the consequences of this rejection are not as severe as it is usually thought. An often raised objection is that without the conjunction closure people are unable to reason. I outline an approach in which we can – in usual cases – reason using conjunctions without accepting the closure in its whole generality. This solution is based on the notion of confidence levels, which can be defined using probabilities. Moreover, on this approach, reasoning has a scalable computational complexity adaptable to cognitive abilities of both rationally bounded and perfectly rational agents. I perform a simulation to assess its error rate, and compare it to reasoning with conjunction closure.

Akratic (epistemic) modesty

Theories of epistemic rationality that take disagreement (or other higher-order evidence) seriously tend to be “modest” in a certain sense: they say that there are circumstances in which it is rational to doubt their correctness. Modest views have been criticized on the grounds that they undermine themselves—they’re self-defeating. The standard Self-Defeat Objections depend on principles forbidding epistemically akratic beliefs; but there are good reasons to doubt these principles—even New Rational Reflection, which was designed to allow for certain special cases that are intuitively akratic. On the other hand, if we construct a Self-Defeat Objection without relying on anti-akratic principles, modest principles turn out not to undermine themselves. In the end, modesty should not be seen as a defect in a theory of rational belief.

Testing the Neutrality of Money towards Real Output: A Case of Malaysia

Neutrality of money has a long debate towards real output. Rational expectation theory states, money is neutral at all time, however, short run effect is mainly caused by the unanticipated money supply. On the opposite stance, based on the theory of rational belief, money is neutral neither in short run nor long run. This paper has examined the long run behaviour of monetary aggregates towards Malaysia economic through quarterly data ranging from 1996 to 2014. Unanticipated money supply which is obtained based on Barro model; M1, M2 and M3 have been tested under the Vector Error Correction Model. Time dummy has been included to accommodate the period of financial crises and fixed exchange rate regime era. However, there is little evidence to support the view of neutrality of money hold in Malaysia. The findings provide evidence to support the decision of Malaysia authority getting out from rigid exchange rate policy since 2005.

Sanctifying evidentialism

AbstractIn contemporary epistemology of religion, evidentialism has been included in a wider critique of traditional foundationalist theories of rational belief. To show the irrelevance of evidentialism, some critics have offered alternatives to the foundationalist approach, prominent among which is Alvin Plantinga's ‘warrant as proper function’. But the connection between evidentialism and foundationalism has been exaggerated, and criticisms of traditional foundationalism do not discredit evidentialism in principle. Furthermore, appeals to warranted belief imply that the heart of evidentialism – the proportioning of belief to rational grounds – has not been discredited but assimilated to the reliabilist view of knowledge by expanding the concept of evidence to include religious experience. In the end, the warrant concept extends the reach of evidentialism, thereby enhancing rather than diminishing its relevance for rational belief.

Knowledge and justification: the origin of the debate between internalism and externalism

The present article aims at clarifying what is in the debate between knowledge and justification, clarification that is important for the understanding of the key problem of contemporary epistemology. In order to do so we go through some of the contemporary conceptions to minimally understand the scenario in which the theories of rational belief compete. Our goal is to analyze some arguments from the proposals brought by epistemologists who are against or for the separation between knowledge and justification or rationality. Last, but not least, we wondered whether or not it would be possible to refute skepticism as an epistemic attitude. We chose Foley’s alternative: it is not possible to refute, it is only possible to live with skepticism as if it were part of the human condition. And, in order to get to know something we must hope the world to cooperate. Keywords: knowledge, justification, internalism, externalism.

What Are Degrees of Belief?

Probabilism is committed to two theses: Correspondingly, a natural way to argue for probabilism is: and then Most of the action in the literature concerns stage ii). Assuming that stage i) has been adequately discharged, various authors move on to stage ii) with varied and ingenious arguments. But an unsatisfactory response at stage i) clearly undermines any gains that might be accrued at stage ii) as far as probabilism is concerned: if those things are not degrees of belief, then it is irrelevant to probabilism whether they should be probabilities or not. In this paper we scrutinize the state of play regarding stage i). We critically examine several of the leading accounts of degrees of belief: reducing them to corresponding betting behavior (de Finetti); measuring them by that behavior (Jeffrey); and analyzing them in terms of preferences and their role in decision-making more generally (Ramsey, Lewis, Maher). We argue that the accounts fail, and so they are unfit to subserve arguments for probabilism. We conclude more positively: ‘degree of belief’ should be taken as a primitive concept that forms the basis of our best theory of rational belief and decision: probabilism.

Rationality of Belief or: Why Savage's Axioms are Neither Necessary Nor Sufficient for Rationality, Second Version

Economic theory reduces the concept of rationality to internal consistency. The practice of economics, however, distinguishes between rational and irrational beliefs. There is therefore an interest in a theory of rational beliefs, and of the process by which beliefs are generated and justified. We argue that the Bayesian approach is unsatisfactory for this purpose, for several reasons. First, the Bayesian approach begins with a prior, and models only a very limited form of learning, namely, Bayesian updating. Thus, it is inherently incapable of describing the formation of prior beliefs. Second, there are many situations in which there is not sufficient information for an individual to generate a Bayesian prior. It follows that the Bayesian approach is neither sufficient not necessary for the rationality of beliefs.

Rationality of Belief Or: Why Savage's Axioms are Neither Necessary nor Sufficient for Rationality, Second Version

Economic theory reduces the concept of rationality to internal consistency. The practice of economics, however, distinguishes between rational and irrational beliefs. There is therefore an interest in a theory of rational beliefs, and of the process by which beliefs are generated and justified. We argue that the Bayesian approach is unsatisfactory for this purpose, for several reasons. First, the Bayesian approach begins with a prior, and models only a very limited form of learning, namely, Bayesian updating. Thus, it is inherently incapable of describing the formation of prior beliefs. Second, there are many situations in which there is not sufficient information for an individual to generate a Bayesian prior. It follows that the Bayesian approach is neither sufficient not necessary for the rationality of beliefs.

Beauty contests under private information and diverse beliefs: How different?

The paper contrasts theories that explain diverse belief by asymmetric private information (PI) with theories which postulate agents use subjective heterogenous beliefs (HB). We focus on problems where agents forecast aggregates such as profit rate of the S&P500 and our model is similar to the one used in the literature on asset pricing (e.g. Brown, D., Jennings, R., 1989. On technical analysis. Review of Financial Studies 2, 527–551; Grundy, B., McNichols, M., 1989. Trade and revelation of information through prices and direct disclosure. Review of Financial Studies 2, 495–526; Allen, F., Morris, S., Shin, H.S., 2006. Beauty contests and iterated expectations in asset markets. Review of Financial Studies 19, 719–752). We first argue there is no a-priori conceptual basis to assuming PI about economic aggregates. Since PI is not observed, models with PI offer no testable hypotheses, making it possible to prove anything with PI. In contrast, agents with HB reveal their forecasts hence data on market belief is used to test hypotheses of HB. We show the common knowledge assumptions of the PI theory are implausible. The theories differ on four main analytical issues. (1) The pricing theory under PI implies prices have infinite memory and at each t depend upon unobservable variables. In contrast, under HB prices have finite memory and depend only upon observable variables. (2) The “Beauty Contest” implications of the two are different. Under PI today's price depends upon today's market belief about tomorrow's mean belief as a function of the supply shock and inference from prices. Under HB it depends upon today's market belief about tomorrow's market beliefs. Tomorrow's beliefs are, in part, beliefs about future beliefs and are often mistaken. Market forecast mistakes are key to Beauty Contests, and are a central cause of market uncertainty called “endogenous uncertainty”. (3) Contrary to PI, theories with HB have wide empirical implications which are testable with available data. (4) PI theories assume unobserved data and hence do not restrict behavior, while rationality conditions impose restrictions on any HB theory. We explain the tight restrictions on the model's parameters imposed by the theory of Rational Beliefs.

Drivers' route choice and learning mechanism under bounded information environment

AbstractIn this paper, we propose the theory of Rational Beliefs as the model of expectations that extends the theory of rational expectations to the postulated environments. Under the rational beliefs paradigm, drivers do not have structural knowledge of traffic conditions and they choose their routes based only on personal experiences and decision‐making rules. We found that if drivers have different decision‐making rules and experiences, then they form different beliefs of traffic conditions (e.g. average travel time) even though they have the same public information and use the same routes. Under the rational beliefs model, drivers are not motivated to renew their beliefs because the beliefs are compatible with their experiences. Therefore, the heterogeneity of beliefs does not disappear even though they have long‐term learning. In order to investigate how drivers form their beliefs of traffic conditions under bounded information environments, numerical experiment is carried out.

Resuscitating the cobweb cycle

AbstractThis article shows that permanent fluctuations in the cobweb model—though inconsistent with a rational expectations equilibrium—can be justified as being rational when reinterpreting the model in the theory of rational beliefs. Copyright © 2004 John Wiley & Sons, Ltd.

Drivers' Route Choice and Learning Mechanism under Bounded Information Environment

In this paper, we propose the theory of Rational Beliefs as the model of expectations that extends the theory of rational expectations to the postulated environments. Under the rational beliefs paradigm, drivers do not have structural knowledge on traffic conditions and they choose their routes based only on personal experiences and decision-making rules. We found that if drivers have different decision-making rules and experiences, then they form different beliefs on traffic conditions (e.g. average travel time) even though they have the same public information and use the same routes. Under the rational beliefs model, drivers are not motivated to renew their beliefs because the beliefs are compatible with their experiences. Therefore, the heterogeneity of beliefs does not disappear even though they have long-term learning.

Agents' Rationality and the CHF/USD Exchange Rate Part 1

The analysis of monthly exchange rates is carried out using a model of McCallum, which is based on the concept of Rational Expectations. Applying the model to the CHF/USD exchange rate starting a misspecification analysis, the RE component appears to be a weak point of the model. The theory of rational beliefs of M. Kurz generalizes the RE concept introducing special consideration of Data Generating Processes (DGP). We find, however, some evidence speaking against the rational belief approach (with respect to the CHF/USD exchange rate) which is related to regime switchings and the presence of unobserved variables in the data-generating process. It appears that the rationality of economic agents depends on complex cognitive processes not discussed by Kurz, but taken into account in a ''story'' by Paul De Grauwe. This story will be supplemented in Part II of the paper in order to eliminate the RE component and to proceed with the misspecification analysis of McCallum's model.

Resuscitating the Cobweb Cycle

This note shows that permanent fluctuations in the Cobweb model - though inconsistent with a rational expectations equilibrium - can be justified as being rational when reinterpreting the model in the theory of rational beliefs.

Endogenous Uncertainty and Market Volatility

Endogenous Uncertainty is that component of economic risk and market volatility which is propagated within the economy by the beliefs and actions of agents. The theory of Rational Belief (see Kurz [1994]) permits rational agents to hold diverse beliefs and consequently, a Rational Belief Equilibrium (in short, RBE) may exhibit diverse patterns of Endogenous Uncertainty. This paper shows that most of the observed volatility in financial markets is generated by the beliefs of the agents and the diverse market puzzles which are examined in this paper, such as the equity premium puzzle, are all driven by the structure of market expectations. To make the case for this theory we present a single RBE model, which builds on developments in Kurz and Beltratti [1997] and Kurz and Schneider [1996], with which we study a list of phenomena that have been viewed as anomalies in financial markets. The model is able to predict the correct order of magnitude of: (i) the long term mean and standard deviation of the price\dividend ratio;(ii) the long term mean and standard deviation of the risky rate of return on equities;(iii) the long term mean and standard deviation of the riskless rate;(iv) the long term mean equity premium.In addition, the model predicts (v) the GARCH property of risky asset returns;(vi) the Forward Discount Bias in foreign exchange markets.We also conjecture that an adaptation of the same model to markets with derivative assets will predict the appearance of smile curves in derivative prices.The common economic explanation for these phenomena is the existence of heterogenous agents with diverse but correlated beliefs. Given such diversity, some agents are optimistic and some pessimistic. We develop a simple model which allows agents to be in these two states of belief but the identity of the optimists and the pessimists fluctuates over time since at any date any agent may be in these two states of belief. In this model there is a unique parameterization under which the model makes all the above predictions simultaneously. That is, although the parameter space of the RBE is large, all parameterizations outside a small neighborhood of the parameter space fail significantly to reproduce some subset of variables under consideration. Any parameter choice in this small neighborhood requires the optimists to be in the majority but the rationality of belief conditions of the RBE require the pessimists to have a higher intensity level. This higher intensity has a decisive effect on the market: it increases the demand for riskless assets, decreases the equilibrium riskless rate and increases the equity premium. In simple terms, the large equity premium and the lower equilibrium riskless rate are the result of the fact that at any moment of time there are agents who hold extreme pessimistic beliefs and they have a relatively stronger impact on the market. The relative impact of these two groups of agents who are, at any moment of time, in the two states of belief is a direct consequence of the rationality of belief conditions and in that sense it is unique to an RBE. As for the correlation among the beliefs of agents, the paper shows that the dynamics of asset prices are strongly affected by such correlation. The pattern of correlation which was used in the model can be explained intuitively in terms of its effect on the dynamics of prices. The model correlation causes periods of price rises (i.e. bull markets) to develop slower than periods of decline (i.e. bear markets) hence the model dynamics do not permit prices to shoot directly from the bottom to the top but the opposite is possible and takes the form of market crashes.

Conditionalization, Cogency, and Cognitive Value

There is a well-known solution to this problem, due originally to F. P. Ramsey and revived by, amongst others, I. J. Good.1 Bayesianism as a theory of rational belief is usually yoked to a theory of rational action. Indeed, standard justifications for the two theoretical tenets often already embody the presumption that it is rational to maximize expected value. So let's add to the above core the following tenet of decision theory:

"Rationality" as a moderator between life events and illness.

Abstract The author examined the theory of rational beliefs, as conceptualized by Ellis, as a moderator between life events and illness. He obtained measures of life events, illness, and rationality on 283 subjects. The results found significantly higher correlation between weighted life events and illness for high rational compared to low rational subjects. A 2 (low vs. high weighted life events) × 2 (low vs. high rationality) analysis of variance found a significant interaction effect between life events and rationality: high rationality was associated with lowered illness for subjects who experienced low levels of life events but not for subjects who experienced high levels of life events. This suggested that rationality functioned to prevent stress and illness when there were few stressors but did not reduce the effect of high levels of life events.

Rational belief

AbstractThere is a tension between normative and descriptive elements in the theory of rational belief. This tension has been reflected in work in psychology and decision theory as well as in philosophy. Canons of rationality should be tailored to what is humanly feasible. But rationality has normative content as well as descriptive content.A number of issues related to both deductive and inductive logic can be raised. Are there full beliefs – statements that are categorically accepted? Should statements be accepted when they become overwhelmingly probable? What is the structure imposed on these beliefs by rationality? Are they consistent? Are they deductively closed? What parameters, if any, does rational acceptance depend on? How can accepted statements come to be rejected on new evidenceShould degrees of belief satisfy the probability calculus? Does conformity to the probability calculus exhaust the rational constraints that can be imposed on partial beliefs? With the acquisition of new evidence, should beliefs change in accord with Bayes' theorem? Are decisions made in accord with the principle of maximizing expected utility? Should they be?A systematic set of answers to these questions is developed on the basis of a probabilistic rule of acceptance and a conception of interval-valued logical probability according to which probabilities are based onknownfrequencies. This leads to limited deductive closure, a demand for only limited consistency, and the rejection of Bayes' theorem as universally applicable to changes of belief. It also becomes possible, given new evidence, to reject previously accepted statements.