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Dynamics of Inductive Inference in a Unified Framework

We present a model of inductive inference that includes, as special cases, Bayesian reasoning, case-based reasoning, and rule-based reasoning. This unified framework allows us to examine, positively or normatively, how the various modes of inductive inference can be combined and how their relative weights change endogenously. We establish conditions under which an agent who does not know the structure of the data generating process will decrease, over the course of her reasoning, the weight of credence put on Bayesian vs. non-Bayesian reasoning. We show that even random data can make certain theories seem plausible and hence increase the weight of rule-based vs. case-based reasoning, leading the agent in some cases to cycle between being rule-based and case-based. We identify conditions under which minmax regret criteria will not be effective.

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File URL: http://cowles.econ.yale.edu/P/cd/d18a/d1811.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1811.

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Length: 43 pages
Date of creation: Jul 2011
Date of revision:
Publication status: Published in Journal of Economic Theory (July 2013), 148(4): 1399-1432
Handle: RePEc:cwl:cwldpp:1811
Note: CFP 1409
Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/

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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. repec:cup:cbooks:9780521802345 is not listed on IDEAS
  2. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  3. repec:cup:cbooks:9780521003117 is not listed on IDEAS
  4. Itzhak Gilboa & David Schmeidler, 2003. "Inductive Inference: An Axiomatic Approach," Econometrica, Econometric Society, vol. 71(1), pages 1-26, January.
  5. Gilboa, Itzhak & Schmeidler, David, 1995. "Case-Based Decision Theory," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 605-39, August.
  6. Itzhak Gilboa & Larry Samuelson, 2012. "Subjectivity in Inductive Inference," Post-Print hal-00489433, HAL.
  7. Itzhak Gilboa & David Schmeidler, 1991. "Updating Ambiguous Beliefs," Discussion Papers 924, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Hume, David, 1758. "An Equiry Concerning Human Understanding," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number hume1758.
  9. Alquist, Ron & Kilian, Lutz, 2007. "What Do We Learn from the Price of Crude Oil Futures?," CEPR Discussion Papers 6548, C.E.P.R. Discussion Papers.
  10. repec:cup:cbooks:9780521741231 is not listed on IDEAS
  11. Matsui, Akihiko, 2000. "Expected utility and case-based reasoning," Mathematical Social Sciences, Elsevier, vol. 39(1), pages 1-12, January.
  12. repec:cup:cbooks:9780521517324 is not listed on IDEAS
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