Abraham Wald's Complete Class Theorem and Knightian Uncertainty
16 Pages Posted: 18 Feb 2015 Last revised: 30 Jun 2017
Date Written: June 27, 2017
I study the implications of Abraham Wald's (1947) complete class theorem for decision making under Knightian uncertainty (or ambiguity). Suppose we call someone who uses Wald's approach to statistical decision making a Waldian. A Waldian may then have preferences over acts that are not in agreement with subjective expected utility but always chooses as if she was a subjective expected utility maximizer. In particular, even Wald's (1945) minmax decision rule is consistent with subjective expected utility.
Keywords: ambiguity, decision theory, Knightian uncertainty, experimental design
JEL Classification: C72, C81, C90, D01, D03, D81
Suggested Citation: Suggested Citation