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Non-Bayesian Updating: A Theoretical Framework

  • Larry G. Epstein

    (Department of Economics, Boston University)

  • Jawwad Noor


    (Columbia Business School)

  • Alvaro Sandroni


    (Columbia Business School)

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
Date of revision:
Handle: RePEc:bos:wpaper:wp2005-025
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  1. 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.
  2. Jawwad Noor, 2005. "Temptation, Welfare and Revealed Preference," Boston University - Department of Economics - Working Papers Series WP2005-15, Boston University - Department of Economics.
  3. Matthew Rabin., 2000. "Inference by Believers in the Law of Small Numbers," Economics Working Papers E00-282, University of California at Berkeley.
  4. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  5. W. Pesendorfer & F. Gul, 1999. "Self-Control and the Theory of Consumption," Princeton Economic Theory Papers 99f2, Economics Department, Princeton University.
  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.
  7. Adam Brandenburger & Eddie Dekel, 2014. "Hierarchies of Beliefs and Common Knowledge," World Scientific Book Chapters, in: The Language of Game Theory Putting Epistemics into the Mathematics of Games, chapter 2, pages 31-41 World Scientific Publishing Co. Pte. Ltd..
  8. Kopylov Igor, 2009. "Temptations in General Settings," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-25, September.
  9. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers 99f1, Economics Department, Princeton University.
  10. Epstein, Larry G., 1983. "Stationary cardinal utility and optimal growth under uncertainty," Journal of Economic Theory, Elsevier, vol. 31(1), pages 133-152, October.
  11. Larry Epstein, 2005. "An Axiomatic Model of Non-Bayesian Updating," RCER Working Papers 521, University of Rochester - Center for Economic Research (RCER).
  12. Larry Epstein & Michael Peters, 1996. "A Revelation Principle For Competing Mechanisms," Working Papers peters-96-02, University of Toronto, Department of Economics.
  13. Epstein, Larry G & Wang, Tan, 1996. ""Beliefs about Beliefs" without Probabilities," Econometrica, Econometric Society, vol. 64(6), pages 1343-73, November.
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