The Limits of Bayesian Inference

ThinkMarkets

by Gene Callahan

Dan Klein’sKnowledge and Coordinationhas something interesting to say about Bayesian inference, although he never explicitly addresses that topic. Consider the following:

Here, we have the distinction between responding to the realization of events within a framework of recognized variables and relationships and the discovery of a fresh opportunity to embrace a new and better framework or interpretation. This element of epiphany, of finding fortune by interpreting the world differently, is the subtle and vital element in human decision making. Yet, it is absent from equilibrium model building. In equilibrium stories, agents never have a “light bulb” moment… (p. 13)

Kirzner’s alertness is the individual’s re-interpretation of that world [of a world of already-interpreted “facts”]. (p. 14)

“Equilibrium” is meaningful only in reference to a specified model… (p. 28)

Bayesian inference, similar to equilibrium theorizing, works within a fixed frame of interpretation: it “is meaningful only in reference…

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