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Non-Bayesian Updating : A Theoretical Framework

  • Larry G. Epstein

    ()

    (University of Rochester)

  • Alvaro Sandroni

    ()

    (J.L.Kellogg School of Management, MEDS, Northwestern University)

This paper models an agent in an infinite horizon 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 reflect 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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File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_505.pdf
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Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 505.

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Length: 60 pages
Date of creation: Dec 2003
Date of revision:
Handle: RePEc:roc:rocher:505
Contact details of provider: Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

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  1. Larry G. Epstein, 2006. "An Axiomatic Model of Non-Bayesian Updating," Review of Economic Studies, Oxford University Press, vol. 73(2), pages 413-436.
  2. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  3. Matthew Rabin., 2000. "Inference by Believers in the Law of Small Numbers," Economics Working Papers E00-282, University of California at Berkeley.
  4. Epstein, Larry G & Wang, Tan, 1996. ""Beliefs about Beliefs" without Probabilities," Econometrica, Econometric Society, vol. 64(6), pages 1343-73, November.
  5. Faruk Gul & Wolfgang Pesendorfer, 2004. "Self-Control and the Theory of Consumption," Econometrica, Econometric Society, vol. 72(1), pages 119-158, 01.
  6. Jawwad Noor, 2005. "Temptation, Welfare and Revealed Preference," Boston University - Department of Economics - Working Papers Series WP2005-15, Boston University - Department of Economics.
  7. 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.
  8. 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.
  9. Epstein, Larry G. & Peters, Michael, 1999. "A Revelation Principle for Competing Mechanisms," Journal of Economic Theory, Elsevier, vol. 88(1), pages 119-160, September.
  10. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers 99f1, Economics Department, Princeton University.
  11. Brandenburger Adam & Dekel Eddie, 1993. "Hierarchies of Beliefs and Common Knowledge," Journal of Economic Theory, Elsevier, vol. 59(1), pages 189-198, February.
  12. Epstein, Larry G., 1983. "Stationary cardinal utility and optimal growth under uncertainty," Journal of Economic Theory, Elsevier, vol. 31(1), pages 133-152, October.
  13. Kopylov Igor, 2009. "Temptations in General Settings," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-25, September.
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