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Showing posts with the label Agreeement theorem

Decision Making as Output and Bounded Rationality

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  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra
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Robert Aumann's Agreement Theorem: A Note

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  In 1976, publishing in the Annals of Statistics, Robert J Aumann made a contribution that perhaps is not just significant but provokes certain debate. He propounded what has to come be known as the Aumann agreement theorem. It is about agreeing to disagree or rather there would be no agreeing to disagree. To Aumann, two people let’s say 1 and 2 are said to ha have common knowledge of an event E if both know it, 1 knows that 2 knows about it and 2 knows 1 knows about it and 1 knows that 2 knows 1 knows about it and so on. Implied is the knowledge about the event is public with no secrecy. Carrying on, the theorem suggests, if two people have the same priors and their posteriors for an event A are common knowledge, then there posteriors are equal. If one were to decode the meaning, it implies given the absence of information asymmetry about an event, the two people in knowledge of the events would hold the same views even though their source of information would have differed in quanti
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