Skip to main content Accessibility help
Hostname: page-component-747cfc64b6-7hjq6 Total loading time: 0.309 Render date: 2021-06-12T21:35:20.837Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": true, "newCiteModal": false, "newCitedByModal": true, "newEcommerce": true }

The Common Prior Assumption in Economic Theory

Published online by Cambridge University Press:  05 December 2008

Stephen Morris
University of Pennsylvania


Why is (it that) common priors are implicit or explicit in the vast majority of the differential information literature in economics and game theory? Why has the economic community been unwilling, in practice, to accept and actually use the idea of truly personal probabilities in much the same way that it did accept the idea of personal utility functions? After all, in (Savage's expected utility theory), both the utilities and probabilities are derived separately for each decision maker. Why were the utilities accepted as personal, and the probabilities not?

Copyright © Cambridge University Press 1995

Access options

Get access to the full version of this content by using one of the access options below.


Akerlof, G. and Dickens, W. 1982. ‘The economic consequences of cognitive dissonance’. American Economic Revieio, 72:307–19Google Scholar
Allais, M. 1953. ‘Le comportement de l'homme rationnel devant le risque. Critique des postulats de l'ecole americaine’. Econometrica, 21:503–46CrossRefGoogle Scholar
Allen, F.Morris, S. and Postlewaite, A.. 1993. ‘Finite bubbles with short sales constraints and asymmetric information’, journal of Economic Theory, 61:206–29CrossRefGoogle Scholar
Anscombe, F. and Aumann, R.. 1963. ‘A definition of subjective probability’. Annals of Mathematical Statistics, 34:199305CrossRefGoogle Scholar
Aumann, R. 1976. ‘Agreeing to Disagree’, The Annals of Statistics, 4:1236–9CrossRefGoogle Scholar
Aumann, R. 1987. ‘Correlated equilibrium as an expression of Bayesian rationality’. Econometrica, 55:118CrossRefGoogle Scholar
Basu, K. 1992. ‘Comment’ in Proceedings of the World Bank Annual Conference on Development Economics. Summers, L. and Shah, S., (eds.)Google Scholar
Bayes, T. 1763. ‘An essay towards solving a problem in the doctrine of chances’. Reprinted in Biometrika, 1956,45:293315Google Scholar
Beaver, W. 1968. ‘The information content of annual earnings announcements’. Empirical Research in Accounting: Selected Studies, supplement to Journal of Accounting Research, 6:6792CrossRefGoogle Scholar
Becker, G. and Stigler, G.. 1977. ‘De gustibus non est disputandum’. American Economic Review, 67:7690Google Scholar
Bernheim, D. 1984. ‘Rationalizable strategic behavior’. Econometrica, 52:1007–28CrossRefGoogle Scholar
Bernheim, D. 1986. ‘Axiomatic characterizations of rational choice in strategic environments’. Scandinavian journal of Economics, 88:473–88CrossRefGoogle Scholar
Bewley, T. 1986. ‘Knightian decision theory: Part I’. Cowles Foundation Discussion PaperNo. 807, Yale UniversityGoogle Scholar
Biais, B. and Boessarts, P.. 1993. ‘Asset prices and volume in a beauty contest’. UnpublishedGoogle Scholar
Black, F. 1986. ‘Noise’, journal of Finance, 41:529–43CrossRefGoogle Scholar
Blume, L. and Easley, D.. 1993. ‘Rational expectations and rational learning’. UnpublishedGoogle Scholar
Boge, W. and Eisele, T.. 1979. ‘On the solutions of Bayesian games’. International journal of Came Theory, 8:193215CrossRefGoogle Scholar
Borel, E. 1924. ‘Apropos of a treatise on probability’. In Studies in Subjective Probability, Kyburg, and Smokier, (eds.), 1st edn. John Wiley and Sons, 1964Google Scholar
Brandenburger, A. 1993. ‘Strategic and structural uncertainty in games’. UnpublishedGoogle Scholar
Brandenburger, A. and Dekel, E.. 1987. ‘Rationalizability and correlated equilibria’. Econometrica, 55:1391–402CrossRefGoogle Scholar
Brandenburger, A. and Dekel, E.. 1993. ‘Hierarchies of beliefs and common knowledge’. journal of Economic Theory, 59:189–98CrossRefGoogle Scholar
Brandenburger, A., Dekel, E. and Geanakoplos, J.. 1992. ‘Correlated equilibrium with generalized information structures’. Games and Economic Behavior, 4:182201CrossRefGoogle Scholar
Broome, J. 1989. ‘Should social preferences be consistent?Economics and Philosophy, 5:718CrossRefGoogle Scholar
Carlsson, H. and van Damme, E.. 1993. ‘Global games and equilibrium selection’. Econometrica, 61:9891018CrossRefGoogle Scholar
Carnap, R. 1950. Logical Foundations of Probability. University of Chicago PressGoogle Scholar
Coate, S. and Loury, G.. 1993. ‘Will affirmative action policies eliminate negative stereotypes?American Economic Revieiu, 83:1220–40Google Scholar
De Finetti, B. 1937. ‘La prevision: ses lois logiques, ses sources subjectives’. Annales de L'Institute Henri Poincare, 7:168. English trans, reprinted in Studies in Subjective Probability, Kyburg, and Smokier, (eds.), 2nd edn. Robert E. Krieger Publishing Co. (1980)Google Scholar
De Finetti, B. 1974. Theory of Probability. John Wiley and SonsGoogle Scholar
De Long, J., Shleifer, A.Summers, L., and Waldmann, R.. 1990. ‘Noisy Trader Risk in Financial Markets’, journal of Political Economy, 98:703–38CrossRefGoogle Scholar
Debreu, G. 1974. ‘Excess Demand Functions’, journal of Mathematical Economics, 1:1521CrossRefGoogle Scholar
Duffie, D. and Huang, C.. 1985. ‘Implementing Arrow-Debreu equilibria by continuous trading of few long-lived securities’. Econometrka, 53:1337–56CrossRefGoogle Scholar
Farmer, A. and Terrell, M.. 1994. ‘Discrimination, Bayesian updating of employer beliefs and human capital accumulation’. UnpublishedGoogle Scholar
Foster, D. and Young, P.. 1990. ‘Stochastic evolutionary game dynamics’. Theoretical Population Biology, 38:219–32CrossRefGoogle Scholar
Fudenberg, D. and Levine, D.. 1993. ‘Self-confirming equilibrium’. Econometrka, 61:523–45CrossRefGoogle Scholar
Geanakoplos, J. 1989. ‘Game theory without partitions, and applications to speculation and consensus’. Cowles Foundation Discussion Paper No. 914, Yale UniversityGoogle Scholar
Geanakoplos, J. and Polemarchakis, H.. 1982. ‘We can't disagree forever’, journal of Economic Theory, 28:192200CrossRefGoogle Scholar
Grossman, S. 1976. ‘On the efficiency of competitive stock markets where agents have diverse expectations’, journal of Finance, 31:573–85CrossRefGoogle Scholar
Guesnerie, R. 1992. ‘An exploration of eductive justifications of the rational-expectations hypothesis’. American Economic Revieiu, 82:1254–78Google Scholar
Gul, F. 1993. ‘A note on the Bayesian view in game theory and economies’. Stanford University Research Paper No. 1191Google Scholar
Hahn, F. 1977. ‘Exercises in conjectural equilibrium analysis’. Scandinavian journal of Economics, 79:210–26CrossRefGoogle Scholar
Hammond, P. 1983. ‘Ex-post optimality as a dynamically consistent objective for collective choice under uncertainty’. In Social Choice and Welfare, Pattanaik, P. and Salles, M. (eds.). North-HollandGoogle Scholar
Harrington, J. 1993. ‘Economic policy, economic performance, and elections’. American Economic Review, 83:2742Google Scholar
Harris, M. and Raviv, A.. 1993. ‘Differences in opinion make a horse race’. Revieiu of Financial Studies, 6:473506CrossRefGoogle Scholar
Harrison, M. and Kreps, D.. 1978. ‘Speculative investor behavior in a stock market with heterogeneous expectation’. Quarterly Journal of Economics, 92:323–36CrossRefGoogle Scholar
Harsanyi, J. 1967. ‘Games with incomplete information played by “Bayesian” players. Part I: the basic model’. Management Science, 14:159–82CrossRefGoogle Scholar
Harsanyi, J. 1968a. ‘Games with incomplete information played by “Bayesian” players. Part II: Bayesian equilibrium points’. Management Science, 14:320–34CrossRefGoogle Scholar
Harsanyi, J. 1968b. ‘Games with incomplete information played by “Bayesian” players. Part III: the basic probability distribution of the game’. Management Science, 14:486502CrossRefGoogle Scholar
Heckman, J. and McCurdy, T.. 1988. ‘Empirical tests of labor-market equilibrium: an evaluation’. Carnegie-Rochester Conference Series on Public Policy, 28:231–58CrossRefGoogle Scholar
Kahneman, D., Slovic, P. and Tversky, A.. 1982. judgements under Uncertainty: Heuristics and Biases. Cambridge University PressCrossRefGoogle Scholar
Kalai, E. and Lehrer, E.. 1993a. ‘Rational learning leads to Nash equilibrium’. Econometrka, 61:1019–15CrossRefGoogle Scholar
Kalai, E. and Lehrer, E.. 1993b. ‘Subjective equilibrium in repeated games,Econometrka, 61:1231–40CrossRefGoogle Scholar
Kandori, M., Mailath, G. and Rob, R.. 1992. ‘Learning, mutation and long run equilibria in games: a general theory and applications’. Econometrica, 61:2956CrossRefGoogle Scholar
Keynes, J. 1921. A Treatise on Probability. Macmillan & CoGoogle Scholar
Keynes, J. 1936. The General Theory of Employment, Interest and Money, MacMillan & CoGoogle Scholar
Knight, F. 1921. Risk, Uncertainty and Profit. Hougton-MillerGoogle Scholar
Kurz, M. 1994a. ‘Asset prices with rational beliefs’. UnpublishedGoogle Scholar
Kurz, M. 1994b. ‘On the structure and diversity of rational beliefs’. Economic Theory, 4:124CrossRefGoogle Scholar
Kyle, A. 1985. ‘Continuous auctions and insider trading’. Econometrica, 53:1315–35CrossRefGoogle Scholar
Lagunoff, R. and Matsui, A.. 1994. ‘Agitators and free riders on the path to cooperation: the evolution of cooperation in mechanisms for public projects’. CARESS Working Paper No. 94–05, University of PennsylvaniaGoogle Scholar
Levi, I. 1980. The Enterprise of Knowledge. MIT PressGoogle Scholar
Linrner, J. 1969. ‘The aggregation of investors’ diverse judgements and preferences in purely competitive markets'. Journal of Financial and Quantitative Analysis, 4:347400Google Scholar
Matsui, A. 1993. ‘Evolution and rationality’. CARESS Working Paper No. 93–19, University of PennsylvaniaGoogle Scholar
Matsui, A. and Rob, R.. 1991. ‘Evolution, rationality and equilibrium selection in societal games’. CARESS Working Paper No. 91–31, University of PennsylvaniaGoogle Scholar
Mertens, J.-F. and Zamir, S.. 1985. ‘Formulation of Bayesian analysis for games with incomplete information’. International Journal of Came Theory, 14:129CrossRefGoogle Scholar
Milgrom, P. and Roberts, J.. 1990. ‘Rationalizability, learning and equilibrium in games with strategic complementarities’. Econometrica, 58:1255–78CrossRefGoogle Scholar
Milgrom, P. and Stokey, N.. 1982. ‘Information, trade and common knowledge’. Journal of Economic Theory, 26:1727CrossRefGoogle Scholar
Mises, R. von. 1957. Probability, Statistics and Truth. George Allen and Unwin LtdGoogle Scholar
Mongin, P. 1993. ‘Consistent Bayesian aggregation’. CORE Discussion Paper No. 9319, forthcoming in Journal of Economic TheoryGoogle Scholar
Morris, S. 1991. ‘The role of beliefs in economic theory’. Ph.D. Dissertation, Yale UniversityGoogle Scholar
Morris, S. 1993a. ‘Risk, uncertainty and hidden information’. CARESS Working Paper No. 93–10, University of Pennsylvania. Forthcoming in Theory and DecisionGoogle Scholar
Morris, S. 1993b. ‘Price bubbles and learning’. University of Cambridge Economic Theory Discussion Paper No. 191Google Scholar
Morris, S. 1994. ‘Trade with heterogeneous prior beliefs and asymmetric information’. Econometrica, 62:1327–48CrossRefGoogle Scholar
Moulin, H. 1979. ‘Dominance solvable voting schemes’. Econometrica, 58:1255–78Google Scholar
Myerson, R. 1991. Came Theory: Analysis of Conflict. Harvard University PressGoogle Scholar
Nau, R. and McCardle, K.. 1990. ‘Coherent behavior in noncooperative games’. Journal of Economic Theory, 50:424–44CrossRefGoogle Scholar
Nau, R. and McCardle, K.. 1991. ‘Arbitrage, rationality and equilibrium,Theory and Decision, 31:199240CrossRefGoogle Scholar
Nyarko, Y. 1991a. ‘Most games violate the Harsanyi doctrine’. Working Paper No. 91–39, C.V. Starr Center for Applied Economics, New York UniversityGoogle Scholar
Nyarko, Y. 1991b. ‘Learning in mis-specified models and the possibility of cycles’. Journal of Economic Theory, 55:416–27CrossRefGoogle Scholar
Pearce, D. 1984. ‘Rationalizable strategic behavior and the problem of perfection,Econometrica, 47:655–78Google Scholar
Quandt, R. 1986. ‘Betting and equilibrium’. Quarterly Journal of Economics, 101:201–7CrossRefGoogle Scholar
Ramsey, F. 1926. ‘Truth and probability’. In The Foundations of Mathematics and other Logical Essays. Kegan Paul, 1930Google Scholar
Ritter, J. 1991. ‘The long-run performance of initial public offerings’. Journal of Finance, 46:327CrossRefGoogle Scholar
Ross, S. 1989. ‘Intertemporal asset pricing’. In Theory of Valuation: Frontiers in Modern Financial Theory. Bhattacharya, S. and Constantinides, G., (eds.). Rowman and LittlefieldGoogle Scholar
Roth, D. 1992. ‘Rationalizable predatory pricing’. Forthcoming in journal of Economic TheoryGoogle Scholar
Rothschild, M. 1974. ‘A two-armed bandit theory of market pricing’, journal of Economic Theory, 9:185202CrossRefGoogle Scholar
Rubinstein, A. 1993. ‘On price recognition and computational complexity in a monopolistic model’, journal of Political Economy, 101:473–84CrossRefGoogle Scholar
Savage, L. 1954. The Foundations of Statistics. John Wiley and SonsGoogle Scholar
Schick, F. 1986. ‘Dutch bookies and money pumps’, journal of Philosophy, 83:112–19CrossRefGoogle Scholar
Sebenius, J. and Geanakoplos, J.. 1983. ‘on't bet on it: contingent agreements with asymmetric information’, journal of the American Statistical Association, 78:382, 424–26CrossRefGoogle Scholar
Shin, H. 1992. ‘Prices of state contingent claims with insider traders, and the favorite-longshot bias’. Economic journal, 102:411, 426–35CrossRefGoogle Scholar
Solow, R. 1976. ‘Economics. Is something missing?’ In Economics History and the Modern Economist. Parker, W., (ed.). Basil BlackwellGoogle Scholar
Sonnenschein, H. 1973. ‘Do Walras's identity and continuity characterize the class of community excess demand functions?journal of Economic Theory, 6:345–54CrossRefGoogle Scholar
Varian, H. 1985. ‘Divergence of opinion in financial markets: a note’, journal of Finance, 40:309–17CrossRefGoogle Scholar
Varian, H. 1989. ‘Differences of opinion in financial markets’. In Financial Risk: Theory, Evidence and Implications. Stone, C., (ed.). Kluwer Academic PublicationsGoogle Scholar
Varian, H. 1992. ‘Differences of opinion’. In The New Palgrave Dictionary of Money and Finance, pp. 668–70. Eatwell, J.Milgate, M. and Newman, P. (eds.). Macmillan/Stockton PressGoogle Scholar
Cited by

Send article to Kindle

To send this article to your Kindle, first ensure is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

Note you can select to send to either the or variations. ‘’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

The Common Prior Assumption in Economic Theory
Available formats

Send article to Dropbox

To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

The Common Prior Assumption in Economic Theory
Available formats

Send article to Google Drive

To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

The Common Prior Assumption in Economic Theory
Available formats

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *