Bewley meet Gilboa and Schmeidler: legitimate preferences under uncertainty

Abstract

We model an organization by a preference relation over uncertain acts satisfying a set of axioms capturing a legitimate decision making process. We show that our set of behavioral conditions is equivalent to a legitimate representation of preferences: there exist two nested sets of priors in which the smaller one represents the set of priors from individuals who occupy higher positions within the organization, while the larger one takes into account also probabilistic beliefs from people of lower positions. A legitimate decision that supports an act f against an act g includes authorization, which occurs when the smaller set of priors unanimously deems the act f better than the act g, a la Bewley (2002), and endorsement, which occurs when the larger set of priors deems the act f better than the act g according to a maxmin rule a la Gilboa and Schmeidler (1989).