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Half empty, half full and why we can agree to disagree forever

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  • Zimper, Alexander

Abstract

Aumann [Aumann R., 1976. Agreeing to disagree. Annals of Statisitics 4, 1236-1239] derives his famous we cannot agree to disagree result under the assumption that people are expected utility (=EU) decision makers. Motivated by empirical evidence against EU theory, we study the possibility of agreeing to disagree within the framework of Choquet expected utility (=CEU) theory which generalizes EU theory by allowing for ambiguous beliefs. As our first main contribution, we show that people may well agree to disagree if their Bayesian updating of ambiguous beliefs is psychologically biased in our sense. Remarkably, this finding holds regardless of whether people with identical priors apply the same psychologically biased Bayesian update rule or not. As our second main contribution, we develop a formal model of Bayesian learning under ambiguity. As a key feature of our approach the posterior subjective beliefs do, in general, not converge to "true" probabilities which is in line with psychological evidence against converging learning behavior. This finding thus formally establishes that CEU decision makers may even agree to disagree in the long-run despite the fact that they always received the same information.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 71 (2009)
Issue (Month): 2 (August)
Pages: 283-299

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Handle: RePEc:eee:jeborg:v:71:y:2009:i:2:p:283-299

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Common knowledge No-trade results Bayesian learning Ambiguity Choquet expected utility theory Dynamic inconsistency;

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Cited by:
  1. A. Ludwig & A. Zimper, 2013. "A parsimonious model of subjective life expectancy," Theory and Decision, Springer, vol. 75(4), pages 519-541, October.
  2. Alexander Zimper, 2013. "On the impossibility of insider trade in rational expectations equilibria," Working Papers 201379, University of Pretoria, Department of Economics.
  3. Alexander Ludwig & Alexander Zimper, 2012. "A decision-theoretic model of asset-price underreaction and overreaction to dividend news," Working Papers 201223, University of Pretoria, Department of Economics.
  4. Alexander Zimper & Alexander Ludwig, 2009. "On attitude polarization under Bayesian learning with non-additive beliefs," Journal of Risk and Uncertainty, Springer, vol. 39(2), pages 181-212, October.
  5. Alexander Ludwig and Alexander Zimper, 2013. "Biased Bayesian Learning with an Application to the Risk-Free Rate Puzzle," Working Papers 390, Economic Research Southern Africa.
  6. Adam Dominiak & Jean-Philippe Lefort, 2013. "Agreement theorem for neo-additive beliefs," Economic Theory, Springer, vol. 52(1), pages 1-13, January.
  7. Zimper, Alexander, 2012. "Asset pricing in a Lucas fruit-tree economy with the best and worst in mind," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 610-628.

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