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Non-Bayesian updating: A theoretical framework

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Author Info

  • Epstein, Larry G.

    ()
    (Department of Economics, Boston University)

  • Noor, Jawwad

    ()
    (Department of Economics, Boston University)

  • Sandroni, Alvaro

    ()
    (Department of Economics, University of Pennsylvania)

Abstract

This paper models an agent in a multi-period setting who does not update according to Bayes' Rule, and who is self-aware and anticipates her updating behavior when formulating plans. Choice-theoretic axiomatic foundations are provided to capture updating biases that reflect excessive weight given to either prior beliefs, or alternatively, to observed data. A counterpart of the exchangeable Bayesian learning model is also described.

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File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20080193/1819/85
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Bibliographic Info

Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 3 (2008)
Issue (Month): 2 (June)
Pages:

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Handle: RePEc:the:publsh:253

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Web page: http://econtheory.org

Related research

Keywords: Non-Bayesian updating; temptation and self-control; overreaction; underreaction; learning; law of small numbers;

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References

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  1. Rabin, Matthew, 1997. "Psychology and Economics," Department of Economics, Working Paper Series qt8jd5z5j2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Jawwad Noor, 2006. "Temptation, Welfare and Revealed Preference," Boston University - Department of Economics - Working Papers Series WP2006-025, Boston University - Department of Economics.
  3. Larry Epstein, 2005. "An Axiomatic Model of Non-Bayesian Updating," RCER Working Papers 521, University of Rochester - Center for Economic Research (RCER).
  4. Faruk Gul & Wolfgang Pesendorfer, 2004. "Self-Control and the Theory of Consumption," Econometrica, Econometric Society, vol. 72(1), pages 119-158, 01.
  5. Kogan, Leonid & Ross, Stephen & Wang, Jiang & Westerfield, Mark, 2003. "The Price Impact and Survival of Irrational Traders," Working papers 4293-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  6. Epstein, Larry G & Wang, Tan, 1996. ""Beliefs about Beliefs" without Probabilities," Econometrica, Econometric Society, vol. 64(6), pages 1343-73, November.
  7. Kopylov Igor, 2009. "Temptations in General Settings," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-25, September.
  8. Matthew Rabin., 2000. "Inference by Believers in the Law of Small Numbers," Economics Working Papers E00-282, University of California at Berkeley.
  9. Larry Epstein & Michael Peters, 1996. "A Revelation Principle For Competing Mechanisms," Working Papers peters-96-02, University of Toronto, Department of Economics.
  10. Brandenburger Adam & Dekel Eddie, 1993. "Hierarchies of Beliefs and Common Knowledge," Journal of Economic Theory, Elsevier, vol. 59(1), pages 189-198, February.
  11. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers 99f1, Economics Department, Princeton University.
  12. Dekel, Eddie & Lipman, Barton L & Rustichini, Aldo, 2001. "Representing Preferences with a Unique Subjective State Space," Econometrica, Econometric Society, vol. 69(4), pages 891-934, July.
  13. Epstein, Larry G., 1983. "Stationary cardinal utility and optimal growth under uncertainty," Journal of Economic Theory, Elsevier, vol. 31(1), pages 133-152, October.
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Citations

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Cited by:
  1. Matthieu Segol, 2012. "Aggregation of information and beliefs on prediction markets with non-bayesian traders," Post-Print dumas-00809694, HAL.
  2. Markus Mobius & Muriel Niederle & Paul Niehaus & Tanya S. Rosenblat, 2011. "Managing self-confidence: theory and experimental evidence," Working Papers 11-14, Federal Reserve Bank of Boston.
  3. André Lapied & Thomas Rongiconi, 2013. "Ambiguity as a Source of Temptation: Modeling Unstable Beliefs," Working Papers halshs-00797631, HAL.
  4. Barton L. Lipman & Wolfgang Pesendorfer, 2010. "Temptation," Boston University - Department of Economics - Working Papers Series WP2010-021, Boston University - Department of Economics.
  5. Ertac, Seda, 2011. "Does self-relevance affect information processing? Experimental evidence on the response to performance and non-performance feedback," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 532-545.
  6. Gershkov, Alex & Moldovanu, Benny, 2013. "Non-Bayesian optimal search and dynamic implementation," Economics Letters, Elsevier, vol. 118(1), pages 121-125.
  7. Riella, Gil, 2013. "Preference for Flexibility and Dynamic Consistency," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2467-2482.
  8. Jadbabaie, Ali & Molavi, Pooya & Sandroni, Alvaro & Tahbaz-Salehi, Alireza, 2012. "Non-Bayesian social learning," Games and Economic Behavior, Elsevier, vol. 76(1), pages 210-225.
  9. Ali Jadbabaie & Pooya Molavi & Alvaro Sandroni & Alireza Tahbaz-Salehi, 2009. "Non-Bayesian Social Learning, Third Version," PIER Working Paper Archive 11-025, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 05 Aug 2011.
  10. Zhang, Hanzhe, 2013. "Evolutionary justifications for non-Bayesian beliefs," Economics Letters, Elsevier, vol. 121(2), pages 198-201.

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