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‘Homo Economicus’ as an intuitive statistician (1): Model-free learning

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Abstract

The subjective expected utility theory is a method for solving an already well-defined decision problem. But prediction of behaviour in dynamic situations requires a theory that explains how the agent models his choice situation and defines his decision problem. The subjective expected utility theory, even if true, is inadequate as a theory of economic behaviour. New classical economics have proposed the rational expectations (RE) hypothesis as a way of specifying the agent’s view of the economy. The hypothesis identifies the agent’s subjective expectations with the mathematical expectations implied by the true economic model, suggesting that he maximizes his expected utility with respect to the true model. So, the new classical paradigm defines economics as the enterprise to derive economic phenomena from two hypotheses: (1) people are expected utility maximizers; and (2) they maximize their expected utility with respect to the true economic model.

Keywords

Prediction Error Rational Expectation Joint Probability Distribution Kernel Estimator Choice Situation 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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© Reza Salehnejad 2007

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