The Bayesian Fallacy: Distinguishing Four Kinds of Beliefs

Khalil, Elias (2008): The Bayesian Fallacy: Distinguishing Four Kinds of Beliefs.

Abstract

This paper distinguishes among four kinds of beliefs: conviction, confidence, perception, conception. Conviction concerns self-ability:“I can build these stairs.” Confidence also concerns the self—ut focuses on the assertion of will in the face of weakness of will. Perception is about the environment such as weather prediction. Conception is also about the environment—but usually couched with context. While convictions are noncognitive and nonevidential beliefs, the other beliefs are either cognitive, evidential, or both. This paper uses the terms “cognition” and “evidentiality” as axes to distinguish the four beliefs. While “cognitive beliefs” are about one’s environment, “noncognitive beliefs” are about one’s self. While the cognitive/noncognitive divide is unconventional, it generates a payoff in light of the evidentiality axis. While “evidential beliefs” are correctable via Bayes’s rule, “nonevidential beliefs” are not. However, when the nonevidential belief is about the environment, the evidence can at least make the belief more (or less) warranted—where “warrantability” is a weaker criterion than “correctability.” And when the nonevidential belief is about the self, i.e., a conviction, the evidence cannot even make the belief more (or less) warranted. The evidence itself develops when one tries to test a conviction. This paper highlights that convictions are the basis of tenacity—crucial for entrepreneurship and economic growth. This paper further demonstrates how three major theories of action—standard rationality, normative theory, and procedural rationality—fail to distinguish the four kinds of beliefs. They, hence, commit, although in different ways, a set of confusions called here the “Bayesian fallacy.”

• Item Type: MPRA Paper
• Language: English
• Keywords: Cognitive Dissonance; Internal Motivations (convictions); Normative Theory (embodied cognition); Other Beliefs (confidence, perception, conception); Procedural Rationality Theory (pragmatism); Self-Perception Theory; Standard Rationality Theory
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology > B49 - Other; B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B59 - Other

References

Aronson, E. (1969) The theory of cognitive dissonance: A current perspective. In: Advances in experimental social psychology, vol. 4, ed. L. Berkowitz, Academic Press.

Aunger, R., ed. (2000) Darwinizing culture: The status of memetics as a science, Oxford University Press.

Babcock, L. & Loewenstein, G. (1997) Explaining bargaining impasse: The role of self-serving biases. Journal of Economic Perspectives, 11:109-26.

Baron, J. (2000) Thinking and deciding, Cambridge University Press.

Bénabou, R. & Tirole, J. (2002) Self-confidence and personal motivation. Quarterly Journal of Economics 117:871-915.

________. (2003) Intrinsic and extrinsic motivation. Review of Economic Studies 70:489-520.

Bentley, A.F. (1941) The human skin: Philosophy's last line of defense. Philosophy of Science 8:1-19.

Bern, D.J. (1972) Self-perception theory. In: Advances in Experimental Social Psychology, vol. 6, ed. L. Berkowitz, Academic Press.

Bernstein, R.J. (1983) Beyond objectivism and relativism: Science, hermeneutics, and praxis, University of Pennsylvania Press.

Boettke, P.J., Lavoie, D. & Storr, V. (2004) The subjectivist methodology of Austrian economics and Dewey’s theory of inquiry. In: Dewey, Pragmatism and Economic Methodology, ed. E.L. Khalil, Routledge.

Boulding, K.E. (1956) The image: Knowledge in life and society, University of Michigan.

Bowles, S., Gintis, H. & Osborne, M. (2001a) The determinants of earnings: A behavioral approach. Journal of Economic Literature 39:1137-1176.

________. (2001b) Incentive-enhancing preferences: Personality, behavior and earnings. American Economic Review 91:155-158.

Breazeale, F. (1979) The philosophy of Nietzsche, Oxford.

Buchler, J. (1980) Charles Peirce's empiricism, Octagon Books.

Callebaut, W. & Rasskin-Gutman, D., eds. (2005) Modularity: Understanding the development and evolution of natural complex systems, MIT Press.

Camerer, C.F., Loewenstein, G., & Rabin, M., eds. (2004) Advances in behavioral economics, Russell Sage Foundation and Princeton University Press.

Carruthers, P. (2006) The architecture of the mind, Oxford University Press.

________ (2007) The creative-action theory of creativity. In: The innate mind, vol. 3, foundations and the future, eds. P. Carruthers, S. Laurence, & S. Stich, Oxford University Press.

Choo, C.W. (1998) The knowing organization, Oxford University Press.

Clark, A. (1997) Being there: Putting brain, body and world together again, MIT Press.

Cosmides, L. & Tooby, J. (1994) Beyond intuition and instinct blindness: Toward an evolutionary rigorous cognitive science. Cognition 50:41-77.

Damasio, A.R. (2003a) Looking for Spinoza: Joy, sorrow, and the feeling brain, Harvest Book.

________. (2003b) Feelings of emotion and the self. In: The Self: From soul to brain, eds., J.

LeDoux, J. Debiec & H. Moss, New York Academy of Sciences.

________. (2005) The neurobiological grounding of human values. In: Neurobiology of Human Values, eds., J.-P. Changeux, A.R. Damasio, W. Singer & Y. Christen, Springer-Verlag.

Greene, J. (2005) Emotion and cognition in moral judgment: Evidence from neuroimaging. In: Neurobiology of Human Values, eds., J.-P. Changeux, A.R. Damasio, W. Singer & Y. Christen, Springer-Verlag.

DeGroot, M.H. (1975) Probability and statistics, Addison-Wesley.

Dewey, J. (1938) Logic: The theory of inquiry, H. Holt.

________. (1977) The Postulate of immediate empiricism. In: The Middle Works, 1899-1924, Volume 3: 1903-1906, ed. J.A. Boydston, text. ed. P.R. Baysinger, Southern Illinois University Press and Feffer & Simons.

________ & Bentley, A.F. (1949) Knowing and the known. Boston: Beacon Press, 1949.

Dupuy, J.-P. (2004) Intersubjectivity and embodiment. Journal of Bioeconomics, 6:275-294.

Egidi, M. & Rizzello, S., eds. (2003) Cognitive economics, 2 vols, Edward Elgar.

Elster, J. (1998) Emotions and economic theory. Journal of Economic Literature 36:47-74.

Epstein, J.M. & Axtell, R. (1996) Growing artificial societies: Social science from the bottom up, Brookings Institution Press.

Falk, A. & Knell, M. (2004) Choosing the Joneses: Endogenous goals and reference standards. Scandinavian Journal of Economics 106:417-435.

Fehr, E. & Gächter, S. (2000a) Cooperation and punishment. American Economic Review 90:980-994.

________. (2000b) Do incentive contracts crowd out voluntary cooperation? Working Paper no. 34, Institute for Empirical Research, University of Zürich.

Feser, E. (2003) Naturalism, evolution and Hayek's philosophy of mind. Paper presented at “Dewey, Hayek and Embodied Cognition: Experience, Beliefs and Rules,” a conference sponsored by Behavioral Research Council conference.

Festinger, L. (1957) A theory of cognitive dissonance, Row Peterson.

Frey, B. (1997a) Not just for the money: An economic theory of personal motivation,Edward Elgar.

________. (1997b) The cost of price incentives: An empirical analysis of motivation crowding out. American Economic Review 87:746-755.

Friedman, M. (1953) Essays in positive economics, University of Chicago Press.

Garner, R.T. & Rosen, B. (1967) Moral philosophy: A systematic introduction to normative ethics and meta-ethics, Macmillan.

Garnham, A. (1994) Cognitive psychology. In: Companion to the Philosophy of Mind, ed. S. Guttenplan, Blackwell.

Gigerenzer, G. (2005) I Think, Therefore I Err. Social Research 72:195-218.

________. (2006) Bounded and rational. In: Contemporary Debates in Cognitive Science, ed. R.J. Stainton, Blackwell.

Gintis, H., Bowles, S., Boyd, R., & Fehr, E., eds. (2005) Moral sentiments and material interests: The foundations of cooperation in economic life, MIT Press.

Glassen, P. (1959) The cognitivity of moral judgments. Mind 68:57-72.

________. (1963) The cognitivity of moral judgments: A rejoinder to Miss Schuster. Mind 72:137-140.

Godfrey-Smith, P. (1996) Complexity and the function of mind in nature, Cambridge University Press.

Goldsmith, A.H., Veum, J.R., & Darity, Jr., W. (1997) The impact of psychological and human capital on wages. Economic Inquiry 35:419-442.

Goldstein, D.G., Gigerenzer, G., Hogarth, R.M., Kacelnik, A., Kareev, Y., Klein, G., Martignon, L., Payne, J.W., & Schlag, K.H. (2001) Group report: Why and when do simple heuristics work? In: Bounded rationality: The adaptive toolbox, eds. G. Gigerenzer & R. Selten, MIT Press.

Gregory, R.L. (2005) The Medawar lecture 2001—Knowledge for vision: Vision for knowledge. Philosophical Transactions of the Royal Society B 360:1231-1251.

Grether, D.M. (1980) Bayes’s rule as a descriptive model: The representativeness heuristic. Quarterly Journal of Economics 95:537-557.

________. (1992) “Testing Bayes’ rule and the representativeness heuristic: Some experimental evidence. Journal of Economic Behavior and Organization 17:31-57.

________ & Plott, C.R. (1979) Economic theory of choice and the preference reversal phenomenon. American Economic Review 69:623-638.

Hall, B.K., Pearson, R.D., & Müller, G.B, eds. (2004) Environment, development, and evolution: Towards a synthesis, MIT Press.

Harmon-Jones, E., & Mills, J. (1999) Cognitive dissonance: Progress on a pivotal theory in social psychology, American Psychological Association.

Hayek, F.A. (1952) The sensory order, University of Chicago Press.

________. (1967) Notes on the evolution of systems of rules of conduct: (The interplay between rules of individual conduct and the social order of actions). In: Studies in Philosophy, Politics and Economics, University of Chicago Press.

________. (1978) New studies in philosophy, politics, economics and the history of ideas, University of Chicago Press.

Heckman, J.J. (2007) The economics, technology and neuroscience of human capability formation. Institute for the Study of Labor (IZA), Bonn, Discussion Paper No. 2875.

________ & Rubinstein, Y. (2001) The importance of non-cognitive skills: Lesson from GED testing. American Economic Review 91:145-149.

Heckman, J.J. & Krueger, A.B. (2003) Inequality in America: What role for human capital policies? MIT Press.

Hodgson, G.M. (2004) The evolution of institutional economics: Agency, structure, and Darwinism in American institutionalism, Routledge.

James, W. (1998) The principles of psychology, Thoemmes.

Lakoff, G.P. & Johnson, M. (1999) Philosophy in The flesh: The embodied mind and its challenge to Western thought, Basic Books.

Kahneman, D. & Tversky, A. eds. (2000) Choices, values, and frames, Cambridge University Press.

Kant, I. (1993) Critique of pure reason, J.M. Dent.

Keynes, J.M. (1937) The general theory of employment. Quarterly Journal of Economics 52:209-223.

Khalil, E.L. (1995a) Has economics progressed? Rectilinear, historicist, universalist, and evolutionary historiographies. History of Political Economy 27:43-87.

________. (1995b) The socioculturalist agenda in economics: Critical remarks of Thorstein Veblen's legacy. Journal of Socio-Economics 24:545-569.

________. (1996) Friedrich Hayek's Darwinian theory of evolution of institutions: Two problems.” Australian Economic Papers 35:183-201.

________. (1997a) Buridan's ass, uncertainty, risk, and self-competition: A theory of entrepreneurship. Kyklos 50:147-163.

________. (1997b) Economics, biology, and naturalism: Three problems concerning the question of individuality. Biology & Philosophy 12:185-206.

________. (1999) Sentimental fools: A critique of Amartya Sen's notion of commitment. Journal of Economic Behavior and Organization 40:373-386.

________. (2003a) The context problematic, behavioral economics and the transactional view: An introduction to `John Dewey and economic theory’. Journal of Economic Methodology 10:107-130.

________. (2003b) A transactional view of entrepreneurship: A Deweyan approach. Journal of Economic Methodology 10:161-179.

________. (2003c) Why does trustworthiness pay? Three answers: An introduction. In: Trust, ed. E.L. Khalil, Edward Elgar.

________. (2004) John Dewey, the transactional view and the behavioral sciences: An introduction.” In: Dewey, Pragmatism and Economic Methodology, ed. E.L. Khalil, Routledge.

________. (2005a) An anatomy of authority: Adam Smith as political theorist. Cambridge Journal of Economics 29:57-71.

________. (2005b) The political nature of the firm. A working paper.

________. (2006) Introduction: Smith the hedgehog. Adam Smith Review, vol. 2, ed. Vivienne Brown, Routledge.

________. (2007a) The problem of creativity: Distinguishing technological action and cognitive action. Revue de Philosophie Économique 8:33-69.

________. (2007b) Action, entrepreneurship and evolution. In: Handbook of Whiteheadian Process Thought, ed. Michel Weber, Verlag.

________. (2007c) Making sense of behavioral anomalies: Distinguishing four kinds of presentational effects. A working paper.

________. (2008) How Adam Smith's concept of self-command suggests a solution to dynamic inconsistency and the commitment problem. Economic Inquiry, forthcoming.

Kuhn, T.S. (1970) The structure of scientific revolutions, University of Chicago Press.

LeBoeuf, R.A. & Shafir, E. (2003) Deep thoughts and shallow frames: On the susceptibility to framing effects. Journal of Behavioral Decision Making 16:77-92.

Leibenstein, H.J. (1987) Inside the firm: The inefficiencies of hierarchy, Harvard University Press.

Lepper, M.R. & Greene, D., eds. (1978) The hidden costs of reward, Erlbaum.

Lipton, P. (2005) The Medawar lecture 2004—The truth about science. Philosophical Transactions of the Royal Society B 360:1259-1269.

Locke, J. (1975) An Essay Concerning Human Understanding, Oxford University Press.

Lycan, W.G., ed. (1999) Mind and cognition: An anthology, 2nd Ed., Blackwell.

Mareschal, D., Johnson, M., Sirois, S., Spratling, M., Thomas, M., and Westermann, G. (2007) Neuroconstructivism: How the Brain Constructs Cognition, Oxford University Press.

McCloskey, D.N. (1994) Knowledge and persuasion in economics, Cambridge University Press.

________. (1998) The rhetoric of economics, University of Wisconsin Press.

Müller, G.B. & Newman, S.A., eds. (2003) Origination of organizational form: Beyond the gene in developmental and evolutionary biology, MIT Press.

Nietzsche, F. (1989) Beyond good and evil, Prometheus Books.

Nooteboom, B. (2000) Learning and innovation in organizations and economies, Oxford University Press.

Oaksford, M. and Chater, N. (2007) Bayesian Rationality: The Probabilistic Approach to Human Reasoning. Oxford: Oxford University Press.

________ (2008) Précis of Bayesian Rationality: The Probabilistic Approach to Human Reasoning. Behavioral and Brain Sciences, forthcoming.

Peirce, C.S. (1877) Fixation of beliefs. Popular Science Monthly 12:1-15.

________. (1931-1958) Collected Works, 8 vols., ed. C. Hartshorne, P. Weiss, & A. Burks, Harvard University Press.

Polanyi, M. (1958) Personal knowledge: Towards a post-critical philosophy, Harper & Row.

________. (1966) The tacit dimension, Doubleday.

Popper, K.R. (1968) The logic of scientific discovery, Hutchinson.

Raff, R.A. (1996) The shape of life: Genes, development, and the evolution of animal form, University of Chicago Press.

Reber, A.S. (2003) Some perhaps surprising consequences of the cognitive `revolution’. Evolution and Cognition 9:102-115.

Rieskamp, J., Busemeyer, J.R., & Mellers, B.A. (2006) Extending the bounds of rationality: Evidence and theories of preferential choice. Journal of Economic Literature 44:631-661.

Rizzello, S. (1999) The economics of the mind, Edward Elgar.

Rose, R. (1983) Twelve angry men: A play in three acts, Dramatic Publications.

Rosenhan, D. L. & Messick, S. (1966) Affect and expectation. Journal of Personality and Social Psychology 3:38-44.

Ryan, F.X. (2002) Dewey’s reconstruction of modern philosophy. Transactional Viewpoints 1:1-4.

Scazzieri, R. (2003) A theory of framing and coordination: Hayek and the Scottish tradition. International Review of Economics and Business 50:323-349.

Searle, JR. (1999) Mind, language and society: Philosophy in the real environment, Basic Books.

________. (2001) Rationality in action, MIT Press.

Sen, A. (1999) Development as freedom, Oxford University Press.

Simon, H.A. (1957) Models of man, John Wiley.

________. (1976) From substantive to procedural rationality. In: Method and appraisal in economics, ed. S.J. Latsis, Cambridge University Press.

________. (1977) Models of discovery, Reidel.

Smircich, L. (1983) Organization as shared meaning. In: Organizational symbolism, eds. L.R. Pondy, P.J. Frost, G. Morgan, & T.C. Dandridge, JAI Press.

Smith, A. (1976) The theory of moral sentiments, Clarendon Press.

Smith, V. (2003) Constructivist and ecological rationality in economics. American Economic Review 93:465-508.

Sober, E. & Wilson, D.S. (1999) Unto others: The evolution and psychology of unselfish behavior, Harvard University Press.

Still, A. & Costall, A. (1991) Against cognitivism: Alternative foundations for cognitive psychology, Harvester Wheatsheaf.

Swain, M. (1972) Knowledge, causality, and justification. The Journal of Philosophy 69:291-300.

Terano, T., Deguchi, H. & Takadama, K., eds. (2003) Meeting the challenge of social problems via agent-based simulation: Post-proceedings of the second international workshop on agent-based approaches in economic and social complex systems, Springer.

Tversky, A. & Kahneman, D. (1981) The framing of decisions and the psychology of choice. Science 211:453-458.

van Fraassen, B.C. (1980) The scientific image, Oxford University Press.

Varela, F., Thompson, E. & Rosch, E. (1991) The embodied mind, MIT Press.

Wason, P.C. & Shapiro, D. (1971) Natural and contrived experience in a reasoning problem. Quarterly Journal of Experimental Psychology 23:63-71.

Weick, K.F. (1995) Sensemaking in organizations, Sage.

Winch, P. (1958) The idea of social science and its relation to philosophy, Routledge & Kegan Paul.