Bayesian decision theory and utilitarian ethics

Abstract

The article presents information on Bayesian theory of rational behavior under risk and uncertainty. The article discusses the rationality of Bayesian concept for ethics and welfare economics. The author says that purpose of the paper is to argue that the Bayesian rationality postulates are absolutely inescapable criteria of rationality for policy decisions. The main conclusion of Bayesian theory is that a rational decision maker under risk and under uncertainty will act in such a way as to maximize his expected utility; or, equivalently, that he will assess the utility of any lottery to him as being equal to its expected utility. Different authors have used different axioms to derive this theorem, and some of these axioms had somewhat questionable intuitive plausibility. It can be shown, however, that for deriving the theorem, all we need, apart from the two basic probability axioms, are the probabilistic equivalence postulate and the sure-thing principle, both of which represent absolutely compelling rationality requirements for serious policy decisions.