Explaining Violations of Bayesian Inference
AbstractEmpirical studies show that agents often violate Bayes' rule in updating probability expectations. This paper deals with errors in combining observations with prior knowledge. Such errors neccessarily occur when agents have limited information-processing capacities. It is shown that rational control of errors could lead to systematic deviations from Bayesian inference which are consistent with empirical behaviour. It is also shown that simple adaptive updating rules are more robust against errors and have a better MSE-performance than the Bayesian rule.
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Bibliographic InfoPaper provided by Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät in its series Working Paper Series B with number 1997-01.
Date of creation: 10 Jan 1997
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Find related papers by JEL classification:
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- Markus Pasche, 1998. "An Approach to Robust Decision Making: The Rationality of Heuristic Behavior," Working Paper Series B 1998-10, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät.
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