IDEAS home Printed from https://ideas.repec.org/a/spr/joecth/v66y2018i2d10.1007_s00199-017-1064-x.html
   My bibliography  Save this article

Bayesian optimism

Author

Listed:
  • Nick Saponara

    (Boston University)

Abstract

Theories of optimism typically hypothesize that optimism is driven by agents changing their beliefs or view of the world. In this paper, we hypothesize that agents maintain their view of the world, but arrive at an optimistic belief by distorting the information used to update beliefs in a motivated way. We behaviorally identify the information used to update beliefs, which may be a distortion of the information the analyst observes. Given this identification, we provide a novel behavioral definition of optimism that alters Dynamic Consistency to account for both the distorted information and the optimistic nature of the distortion.

Suggested Citation

  • Nick Saponara, 2018. "Bayesian optimism," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(2), pages 375-406, August.
    • Handle: RePEc:spr:joecth:v:66:y:2018:i:2:d:10.1007_s00199-017-1064-x
    DOI: 10.1007/s00199-017-1064-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00199-017-1064-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00199-017-1064-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Markus K. Brunnermeier & Jonathan A. Parker, 2005. "Optimal Expectations," American Economic Review, American Economic Association, vol. 95(4), pages 1092-1118, September.
    2. Caplin, Andrew & Schotter, Andrew, 2008. "The Foundations of Positive and Normative Economics: A Handbook," OUP Catalogue, Oxford University Press, number 9780195328318, Decembrie.
    3. Paolo Ghirardato, 2002. "Revisiting Savage in a conditional world," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(1), pages 83-92.
    4. Jay Lu, 2016. "Random Choice and Private Information," Econometrica, Econometric Society, vol. 84, pages 1983-2027, November.
    5. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2006. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Econometrica, Econometric Society, vol. 74(6), pages 1447-1498, November.
    6. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    7. Ghirardato, Paolo & Marinacci, Massimo, 2002. "Ambiguity Made Precise: A Comparative Foundation," Journal of Economic Theory, Elsevier, vol. 102(2), pages 251-289, February.
    8. Igor Kopylov, 2016. "Subjective probability, confidence, and Bayesian updating," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(4), pages 635-658, October.
    9. , & ,, 2007. "Updating preferences with multiple priors," Theoretical Economics, Econometric Society, vol. 2(3), September.
    10. 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.
    11. Ellis, Andrew, 2018. "Foundations for optimal inattention," Journal of Economic Theory, Elsevier, vol. 173(C), pages 56-94.
    12. Jean‐Pierre Benoît & Juan Dubra, 2011. "Apparent Overconfidence," Econometrica, Econometric Society, vol. 79(5), pages 1591-1625, September.
    13. David Eil & Justin M. Rao, 2011. "The Good News-Bad News Effect: Asymmetric Processing of Objective Information about Yourself," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 114-138, May.
    14. Dillenberger, David & Lleras, Juan Sebastián & Sadowski, Philipp & Takeoka, Norio, 2014. "A theory of subjective learning," Journal of Economic Theory, Elsevier, vol. 153(C), pages 287-312.
    15. Kovach, Matthew, 2020. "Twisting the truth: foundations of wishful thinking," Theoretical Economics, Econometric Society, vol. 15(3), July.
    16. Charalambos D. Aliprantis & Kim C. Border, 2006. "Infinite Dimensional Analysis," Springer Books, Springer, edition 0, number 978-3-540-29587-7, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ellis, Andrew, 2018. "Foundations for optimal inattention," Journal of Economic Theory, Elsevier, vol. 173(C), pages 56-94.
    2. Cheng, Xiaoyu, 2022. "Relative Maximum Likelihood updating of ambiguous beliefs," Journal of Mathematical Economics, Elsevier, vol. 99(C).
    3. Brian Hill, 2022. "Updating confidence in beliefs," Post-Print hal-03503986, HAL.
    4. Hill, Brian, 2022. "Updating confidence in beliefs," Journal of Economic Theory, Elsevier, vol. 199(C).
    5. Dominiak, Adam & Duersch, Peter & Lefort, Jean-Philippe, 2012. "A dynamic Ellsberg urn experiment," Games and Economic Behavior, Elsevier, vol. 75(2), pages 625-638.
    6. Riella, Gil, 2013. "Preference for Flexibility and Dynamic Consistency," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2467-2482.
    7. Faro, José Heleno & Lefort, Jean-Philippe, 2019. "Dynamic objective and subjective rationality," Theoretical Economics, Econometric Society, vol. 14(1), January.
    8. Heyen, Daniel, 2018. "Ambiguity aversion under maximum-likelihood updating," LSE Research Online Documents on Economics 80342, London School of Economics and Political Science, LSE Library.
    9. Lin, Yi-Hsuan, 2022. "Stochastic choice and rational inattention," Journal of Economic Theory, Elsevier, vol. 202(C).
    10. Daniele Pennesi, 2020. "Identity and information acquisition," Carlo Alberto Notebooks 610, Collegio Carlo Alberto, revised 2021.
    11. Jarrod Burgh & Emerson Melo, 2024. "Censored Beliefs and Wishful Thinking," Papers 2402.01892, arXiv.org.
    12. Alexander Zimper, 2011. "Do Bayesians Learn Their Way Out of Ambiguity?," Decision Analysis, INFORMS, vol. 8(4), pages 269-285, December.
    13. repec:dau:papers:123456789/7332 is not listed on IDEAS
    14. Matthew Kovach, 2021. "Ambiguity and Partial Bayesian Updating," Papers 2102.11429, arXiv.org, revised Mar 2023.
    15. Peter Klibanoff & Sujoy Mukerji & Kyoungwon Seo, 2014. "Perceived Ambiguity and Relevant Measures," Econometrica, Econometric Society, vol. 82(5), pages 1945-1978, September.
    16. André, Eric, 2016. "Crisp monetary acts in multiple-priors models of decision under ambiguity," Journal of Mathematical Economics, Elsevier, vol. 67(C), pages 153-161.
    17. de Oliveira, Henrique & Denti, Tommaso & Mihm, Maximilian & Ozbek, Kemal, 2017. "Rationally inattentive preferences and hidden information costs," Theoretical Economics, Econometric Society, vol. 12(2), May.
    18. Klibanoff, Peter & Marinacci, Massimo & Mukerji, Sujoy, 2009. "Recursive smooth ambiguity preferences," Journal of Economic Theory, Elsevier, vol. 144(3), pages 930-976, May.
    19. André, Eric, 2014. "Optimal portfolio with vector expected utility," Mathematical Social Sciences, Elsevier, vol. 69(C), pages 50-62.
    20. Georgalos, Konstantinos, 2021. "Dynamic decision making under ambiguity: An experimental investigation," Games and Economic Behavior, Elsevier, vol. 127(C), pages 28-46.
    21. Chambers, Robert G. & Melkonyan, Tigran, 2009. "Smoothing preference kinks with information," Mathematical Social Sciences, Elsevier, vol. 58(2), pages 173-189, September.

    More about this item

    Keywords

    Optimism; Non-Bayesian updating; Motivated reasoning; Subjective information;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:66:y:2018:i:2:d:10.1007_s00199-017-1064-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.