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Overreacting to a black box

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  • Yanagita, Shohei

Abstract

We often receive recommendations whose generation process is so complex that we cannot understand it. In such cases, we cannot perform accurate Bayesian updating. Moreover, it is well-documented that when such recommendations are unexpected for us, we often overreact to them. Based on the framework established by Ke, Wu, and Zhao (2024), we characterize an updating rule expressing such a reaction. In the resulting updating rule, if the distance between the recommendation and the decision maker’s prior belief is significant enough, she perceives it as unexpected and overreacts. This rule can be seen as a generalization of the contraction rule, proposed by Ke, Wu, and Zhao (2024).

Suggested Citation

  • Yanagita, Shohei, 2025. "Overreacting to a black box," Journal of Mathematical Economics, Elsevier, vol. 118(C).
    • Handle: RePEc:eee:mateco:v:118:y:2025:i:c:s0304406825000485
    DOI: 10.1016/j.jmateco.2025.103131
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    References listed on IDEAS

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    1. Evan Sadler, 2021. "A Practical Guide to Updating Beliefs From Contradictory Evidence," Econometrica, Econometric Society, vol. 89(1), pages 415-436, January.
    2. Holt, Charles A. & Smith, Angela M., 2009. "An update on Bayesian updating," Journal of Economic Behavior & Organization, Elsevier, vol. 69(2), pages 125-134, February.
    3. Pietro Ortoleva, 2012. "Modeling the Change of Paradigm: Non-Bayesian Reactions to Unexpected News," American Economic Review, American Economic Association, vol. 102(6), pages 2410-2436, October.
    4. Ke, Shaowei & Wu, Brian & Zhao, Chen, 2024. "Learning from a black box," Journal of Economic Theory, Elsevier, vol. 221(C).
    5. Larry G. Epstein, 2006. "An Axiomatic Model of Non-Bayesian Updating," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(2), pages 413-436.
    6. , G. & , & ,, 2008. "Non-Bayesian updating: A theoretical framework," Theoretical Economics, Econometric Society, vol. 3(2), June.
    7. Matthew Kovach, 2021. "Conservative Updating," Papers 2102.00152, arXiv.org.
    8. Zhao, Chen, 2022. "Pseudo-Bayesian updating," Theoretical Economics, Econometric Society, vol. 17(1), January.
    9. Park, Hyoeun & Tayawa, Jason Paulo, 2024. "Anchored belief updating from recommendations," Journal of Mathematical Economics, Elsevier, vol. 110(C).
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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