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Non-Bayesian Updating: A Theoretical Framework

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Author Info
Larry G. Epstein (Department of Economics, Boston University)
Jawwad Noor () (Columbia Business School)
Alvaro Sandroni () (Columbia Business School)

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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. Then the model is specialized axiomatically to capture updating biases that re.ect excessive weight given to (i) prior beliefs, or alternatively, (ii) the realized sample. Finally, the paper describes a counterpart of the exchangeable Bayesian model, where the agent tries to learn about parameters, and some answers are provided to the question "what does a non-Bayesian updater learn?"

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2005-025.

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Length: 50 pages
Date of creation: Jul 2005
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Handle: RePEc:bos:wpaper:wp2005-025

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  1. Faruk Gul & Wolfgang Pesendorfer, 2004. "Self-Control and the Theory of Consumption," Econometrica, Econometric Society, vol. 72(1), pages 119-158, 01. [Downloadable!] (restricted)
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  2. Jawwad Noor, 2005. "Temptation, Welfare and Revealed Preference," Microeconomics 0509009, EconWPA. [Downloadable!]
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  3. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March. [Downloadable!] (restricted)
  4. Epstein, Larry G. & Peters, Michael, 1999. "A Revelation Principle for Competing Mechanisms," Journal of Economic Theory, Elsevier, vol. 88(1), pages 119-160, September. [Downloadable!] (restricted)
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  5. Leonid Kogan & Stephen Ross & Jiang Wang & Mark Westerfield, 2003. "The Price Impact and Survival of Irrational Traders," NBER Working Papers 9434, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Eddie Dekel, 1997. "A Unique Subjective State Space for Unforeseen Contingencies," Discussion Papers 1202, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  7. Epstein, Larry G & Wang, Tan, 1996. ""Beliefs about Beliefs" without Probabilities," Econometrica, Econometric Society, vol. 64(6), pages 1343-73, November. [Downloadable!] (restricted)
  8. Matthew Rabin, 2002. "Inference By Believers In The Law Of Small Numbers," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 775-816, August. [Downloadable!] (restricted)
  9. Epstein, Larry G., 1983. "Stationary cardinal utility and optimal growth under uncertainty," Journal of Economic Theory, Elsevier, vol. 31(1), pages 133-152, October. [Downloadable!] (restricted)
  10. Larry Epstein, 2002. "An Axiomatic Model of Non-Bayesian Updating," RCER Working Papers 498, University of Rochester - Center for Economic Research (RCER), revised Jan 2005. [Downloadable!]
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  11. Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, vol. 69(6), pages 1403-1435, November. [Downloadable!] (restricted)
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  12. 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. [Downloadable!]
  13. Brandenburger Adam & Dekel Eddie, 1993. "Hierarchies of Beliefs and Common Knowledge," Journal of Economic Theory, Elsevier, vol. 59(1), pages 189-198, February. [Downloadable!] (restricted)
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  1. Chambers, Christopher P. & Hayashi, Takashi, 2005. "Bayesian consistent prior selection," Working Papers 1238, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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