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## Bayesian Decision Theory

Foundations for a unified theory
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What is it?
Bayesian decision theories are formal models of
rational agency, typically comprising a theory of:
Consistency of belief, desire and preference
Optimal choice

Lots of common ground
Ontology: Agents; states of the world;
actions/options; consequences
Form: Two variable quantitative models ; centrality of
representation theorem
Content: The principle that rational action maximises
expected benefit.
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It seems natural therefore to speak of plain Decision
Theory. But there are differences too ...

e.g. Savage versus Jeffrey.
Structure of the set of prospects
The representation of actions
SEU versus CEU.

Are they offering rival theories or different expressions of
the same theory?

Thesis: Ramsey, Savage, Jeffrey (and others) are all
special cases of a single Bayesian Decision Theory
(obtained by restriction of the domain of prospects).
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Plan
Introductory remarks
Prospects
Basic Bayesian hypotheses
Representation theorems

A short history
Ramseys solution to the measurement problem
Ramsey versus Savage
Jeffrey

Conditionals
Lewis-Stalnaker semantics
A common logic

Conditional algebras

A Unified Theory (2
nd
lecture)

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Types of prospects
Usual factual possibilities e.g. it will rain tomorrow; UK
inflation is 3%; etc.
Denoted by P, Q, etc.
Assumed to be closed under Boolean compounding
Conjunction: PQ
Negation: P
Disjunction: P v Q
Logical truth/falsehood: T,

Plus derived conditional possibilities e.g. If it rains
tomorrow our trip will be cancelled; if the war in Iraq
continues, inflation will rise.
The prospect of X if P and Y if Q will be represented as
(PX)(QY)
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Main Claims
Probability Hypothesis: Rational degrees of belief in
factual possibilities are probabilities.

SEU Hypothesis: The desirability of (PX)(PY) is
an average of the desirabilities of PX and PY,
respectively weighted by the probability that P or that P.

CEU Hypothesis: The desirability of the prospect of X is
an average of the desirabilities of XY and XY,
respectively weighted by the conditional probability,
given X, of XY and of XY.

Adams Thesis: The rational degree of belief to have in
PX is the conditional probability of X given that P.
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Representation Theorems
Two problems; one kind of solution!
Problem of measurement
Problem of justification

Scientific application: Representation theorems shows
that specific conditions on (revealed) preferences suffice
to determine a measure of belief and desire.

Normative application: Theorems show that commitment
to conditions on (rational) preference imply commitment
to properties of rational belief and desire.
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Ramsey-Savage Framework
1. Worlds / consequences:
1
,
2
,
3
,
2. Propositions / events: P, Q, R,
3. Conditional Prospects / Actions: (P
1
)(Q
2
),
Good egg Rotten egg
Break egg 6-egg omelette Nothing to eat
Throw egg away 5-egg omelette 5-egg omelette
4. Preferences are over worlds and conditional
prospects.

If we had the power of the almighty we could by offering
him options discover how he placed them in order of merit

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Ramseys Solution to the Measurement
Problem
1. Ethically neutral propositions
Problem of definition
Enp P has probability one-half iff for all
1
and

2
(P
1
)(P
2
) ~ (P
1
)(P
2
)

2. Differences in value
Values are sets of equi-preferred prospects
o - > iff (Po)(P) > (P )(P)
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3. Existence of utility

Axiomatic characterisation of a value difference
structure implies that existence of a mapping from
values to real numbers such that:
o - = iff U(o) U() = U() U()

4. Derivation of probability

Suppose ~ (o if P)( if P). Then:

) ( ) (
) ( ) (
) Pr(
| o
|
U U
U U
P

=
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Evaluation
The Justification problem
Why should measurement axioms hold?
Sure-Thing Principle versus P4 and Impartiality

Jeffreys objection
Fanciful causal hypotheses and artifacts of attribution.
Behaviourism in decision theory

Ethical neutrality versus state dependence
Desirabilistic dependence
Constant acts
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Utility Dependence
Good egg Rotten egg
Break egg 6-egg omelette
None wasted
Nothing to eat
5 eggs wasted
Throw egg away 5-egg omelette
1 egg wasted
5-egg omelette
None wasted
Good egg Rotten egg
Miracle 6-egg omelette
None wasted
6-egg omelette
None wasted
Topsy Turvy Nothing to eat
5 eggs wasted
6-egg omelette
None wasted
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Probability Dependence
Republican Democrat
Dodgy land deal Low taxes
Unrestricted development
High taxes
Restricted development
No deal No development No development
Miracle deal High taxes
Restricted development
Low taxes
Unrestricted development
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Jeffrey
A simple ontology of propositions
State dependent utility
Partition independence (CEU)

Measurement
Under-determination of quantitative representations
The inseparability of belief and desire?
Solutions: More axioms, more relations or more
prospects?

The logical status of conditionals
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Conditionals
Two types of conditional?
Counterfactual: If Oswald hadnt killed Kennedy
then someone else would have.
Indicative: If Oswald didnt kill Kennedy then
someone else did

Two types of supposition
Evidential: If its true that
Interventional: If I make it true that

[Lewis, Joyce, Pearl versus Stalnaker, Adams,
Edgington]
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Lewis-Stalnaker semantics
Intuitive idea: AB is true iff B is true in those worlds
most like the actual one in which A is true.

Formally: AB is true at a world w iff for every AB-
world there is a closer AB-world (relative to an
ordering on worlds).

1. Limit assumption: There is a closest world
2. Uniqueness Assumption: There is at most one
closest world.

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General Idea: Rational belief in conditionals goes by
conditional belief for their consequents on the
assumption that their antecedent is true.

Adams Thesis: The probability of an (indicative)
conditional is the conditional probability of its
consequent given its antecedent:
(AT)

Logic from belief: A sentence Y can be validly
inferred from a set of premises iff the high probability
of the premises guarantees the high probability of Y.
) | ( ) ( A B p B A p =
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A Common Logic

1. AB AB AB
2. A A
3. AA
4. AA
5. AB AAB
6. (AB)(AC) ABC
7. (AB) v (AC) A(B v C)
8. (AB) AB
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The Bombshell
Question: What must the truth-conditions of AB be, in
order that Ramsey-Adams hypothesis be satisfied?

Lewis, Edgington, Hajek, Grdenfors, Dring, : There is no non-
trivial assignment of truth-conditions to the conditional

Conclusion:
1. few philosophical theses that have been more decisively
refuted Joyce (1999, p.191)
2. Ditch bivalence!
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A
C B
AvB
BvC AvC

Boolean algebra
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A
C B
AvB BvC AvC

AvCA AvCC
AvCAvC
AvCAC
Conditional Algebras (1)

(XY)(XZ) XYZ
(XY) v (XZ) X(Y v Z)
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A
C B
AvB BvC AvC

AvCA AvCC
AvCAvC
AvCAC
Conditional algebras (2)

XY XY
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A
C B
AvB BvC AvC

AvCA AvCC
AvCAvC
AvCAC
Conditional algebras (3)

XY XY
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A
C B
AvB BvC AvC

AvCA AvCC
AvCAvC
AvCAC
Normally bounded algebras (1)

XX
XY XXY
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A
C B
AvB BvC AvC

AvCA AvCC
AvCAvC
AvCAC
Material Conditional

X X
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A
C B
AvB BvC AvC

AvCA AvCC
AvCAvC
AvCAC
Normally bounded algebras (2)

XX
(XY) XY
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A
C B
AvB BvC AvC

AvCA AvCC
Conditional
algebras (3)