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Subjective Contingencies and Limited Bayesian Updating

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  • Minardi, Stefania

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  • Savochkin, Andrei

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Abstract

We depart from Savage’s (1954) common state space assumption and introduce a model that allows for a subjective understanding of uncertainty. Within the revealed preference paradigm, we uniquely identify the agent’s subjective state space via her preferences conditional on incoming information. According to our representation, the agent’s subjective contingencies are coarser than the analyst’s states; she uses an additively separable utility with respect to her set of contingencies; and she adopts an updating rule that follows the Bayesian spirit but is limited by her perception of uncertainty. We illustrate our theory with an application to the Confirmatory Bias.

Suggested Citation

  • Minardi, Stefania & Savochkin, Andrei, 2017. "Subjective Contingencies and Limited Bayesian Updating," HEC Research Papers Series 1203, HEC Paris.
  • Handle: RePEc:ebg:heccah:1203
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    Cited by:

    1. Piermont, Evan, 2017. "Introspective unawareness and observable choice," Games and Economic Behavior, Elsevier, vol. 106(C), pages 134-152.
    2. Ani Guerdjikova & John Quiggin, 2019. "Market Selection With Differential Financial Constraints," Econometrica, Econometric Society, vol. 87(5), pages 1693-1762, September.

    More about this item

    Keywords

    understanding of uncertainty; subjective state space; non-Bayesian updating;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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