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Updating toward the signal

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  • Christopher Chambers

    ()

  • Paul Healy

Abstract

Modelers frequently assume (either implicitly or explicitly) that an agent’s posterior expectation of some variable lies between their prior mean and the realization of an unbiased signal of that variable. We call this property updating toward the signal (UTS). We show that if the prior and signal error densities are both symmetric and quasiconcave then UTS will occur. If, for a given prior, UTS occurs for all symmetric and quasiconcave error densities, then in fact the prior must be symmetric and quasiconcave. Similar characterizations are derived for two additional updating requirements that are strictly weaker than UTS. Copyright The Author(s) 2012

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 50 (2012)
Issue (Month): 3 (August)
Pages: 765-786

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Handle: RePEc:spr:joecth:v:50:y:2012:i:3:p:765-786

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Related research

Keywords: Signal extraction; Bayes’s rule; Reversion to the mean; Posterior beliefs; Bayesian robustness; C11; D01; D81; D83; D84;

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Cited by:
  1. Georganas, Sotiris & Healy, Paul J. & Li, Nan, 2014. "Frequency bias in consumers׳ perceptions of inflation: An experimental study," European Economic Review, Elsevier, vol. 67(C), pages 144-158.
  2. Sobel, Joel, 2014. "On the relationship between individual and group decisions," Theoretical Economics, Econometric Society, vol. 9(1), January.
  3. Joel Sobel, 2014. "On the relationship between individual and group decisions," Levine's Working Paper Archive 786969000000000950, David K. Levine.

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