LEONARD SAVAGE, THE ELLSBERG PARADOX, AND THE DEBATE ON SUBJECTIVE PROBABILITIES: EVIDENCE FROM THE ARCHIVES

Abstract

This paper explores archival material concerning the reception of Leonard J. Savage’s foundational work of rational choice theory in its subjective-Bayesian form. The focus is on the criticism raised in the early 1960s by Daniel Ellsberg, William Fellner, and Cedric Smith, who were supporters of the newly developed subjective approach but could not understand Savage’s insistence on the strict version he shared with Bruno de Finetti. The episode is well known, thanks to the so-called Ellsberg Paradox and the extensive reference made to it in current decision theory. But Savage’s reaction to his critics has never been examined. Although Savage never really engaged with the issue in his published writings, the private exchange with Ellsberg and Fellner, and with de Finetti about how to deal with Smith, shows that Savage’s attention to the generalization advocated by his correspondents was substantive. In particular, Savage’s defense of the normative value of rational choice theory against counterexamples such as Ellsberg’s did not prevent him from admitting that he would give careful consideration to a more realistic axiomatic system, should the critics be able to provide one.