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Updating preferences with multiple priors

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  • ,

    (Tel Aviv University)

  • ,

    (Northwestern University)

Abstract

We propose and axiomatically characterize dynamically consistent update rules for decision making under ambiguity. These rules apply to the preferences with multiple priors of Gilboa and Schmeidler (1989), and are the first, for any model of preferences over acts, to be able to reconcile typical behavior in the face of ambiguity (as exemplified by Ellsberg’s paradox) with dynamic consistency for all non-null events. Updating takes the form of applying Bayes’ rule to subsets of the set of priors, where the specific subset depends on the preferences, the conditioning event, and the choice problem (i.e., a feasible set of acts together with an act chosen from that set).

Suggested Citation

  • , & ,, 2007. "Updating preferences with multiple priors," Theoretical Economics, Econometric Society, vol. 2(3), September.
    • Handle: RePEc:the:publsh:215
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    References listed on IDEAS

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    1. Takashi Hayashi, 2005. "Intertemporal substitution, risk aversion and ambiguity aversion," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(4), pages 933-956, June.
    2. Richard Arena & Agnès Festré, 2006. "Knowledge, Beliefs and Economics," Post-Print halshs-00271316, HAL.
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    More about this item

    Keywords

    Updating; dynamic consistency; ambiguity; Ellsberg; Bayesian; consequentialism;
    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
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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