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Attitude polarization

  • Ludwig, Alexander

    ()

    (Mannheim Research Institute for the Economics of Aging (MEA) and Sonderforschungsbereich 504)

  • Zimper, Alexander

    ()

    (Sonderforschungsbereich 504)

Psychological evidence suggests that people’s learning behavior is often prone to a “myside bias”or “irrational belief persistence”in contrast to learning behavior exclusively based on objective data. In the context of Bayesian learning such a bias may result in diverging posterior beliefs and attitude polarization even if agents receive identical information. Such patterns cannot be explained by the standard model of rational Bayesian learning that implies convergent beliefs. As our key contribution, we therefore develop formal models of Bayesian learning with psychological bias as alternatives to rational Bayesian learning. We derive conditions under which beliefs may diverge in the learning process and thus conform with the psychological evidence. Key to our approach is the assumption of ambiguous beliefs that are formalized as non-additive probability measures arising in Choquet expected utility theory. As a speci…c feature of our approach, our models of Bayesian learning with psychological bias reduce to rational Bayesian learning in the absence of ambiguity.

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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 07-66.

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Length: 21 pages
Date of creation: 07 Nov 2007
Date of revision:
Handle: RePEc:xrs:sfbmaa:07-66
Note: We thank Elias Khalil for helpful comments and suggestions. Financial support by the German
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  1. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
  2. Alexander Ludwig & Alexander Zimper, 2004. "Investment Behavior under Ambiguity: The Case of Pessimistic Decision Makers," MEA discussion paper series 04060, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  3. Marciano Siniscalchi, 2001. "Bayesian Updating for General Maxmin Expected Utility Preferences," Discussion Papers 1366, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Vijay Krishna & Tomas Sjostrom, 1995. "On the Convergence of Fictitious Play," Harvard Institute of Economic Research Working Papers 1717, Harvard - Institute of Economic Research.
  5. Ghirardato, Paolo & Marinacci, Massimo, 2002. "Ambiguity Made Precise: A Comparative Foundation," Journal of Economic Theory, Elsevier, vol. 102(2), pages 251-289, February.
  6. Drew Fudenberg & David K. Levine, 1996. "Consistency and Cautious Fictitious Play," Levine's Working Paper Archive 470, David K. Levine.
  7. Epstein, Larry G, 1999. "A Definition of Uncertainty Aversion," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 579-608, July.
  8. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May.
  9. Tonks, Ian, 1981. "Bayesian Learning and the Optimal Investment Decision of the Firm," The Warwick Economics Research Paper Series (TWERPS) 192, University of Warwick, Department of Economics.
  10. Fudenberg Drew & Kreps David M., 1993. "Learning Mixed Equilibria," Games and Economic Behavior, Elsevier, vol. 5(3), pages 320-367, July.
  11. John Ameriks & Andrew Caplin & John Leahy, 2002. "Wealth Accumulation and the Propensity to Plan," NBER Working Papers 8920, National Bureau of Economic Research, Inc.
  12. Andrew B. Abel, 2001. "An Exploration of the Effects of Pessimism and Doubt on Asset Returns," NBER Working Papers 8132, National Bureau of Economic Research, Inc.
  13. Viscusi, W. Kip, 1985. "A Bayesian perspective on biases in risk perception," Economics Letters, Elsevier, vol. 17(1-2), pages 59-62.
  14. Viscusi, W Kip & O'Connor, Charles J, 1984. "Adaptive Responses to Chemical Labeling: Are Workers Bayesian Decision Makers?," American Economic Review, American Economic Association, vol. 74(5), pages 942-56, December.
  15. Eichberger, J. & Kelsey, D., 1996. "E-Capacities and the Ellsberg Paradox," Discussion Papers 96-13, Department of Economics, University of Birmingham.
  16. Siniscalchi, Marciano, 2011. "Dynamic choice under ambiguity," Theoretical Economics, Econometric Society, vol. 6(3), September.
  17. Gilboa, Itzhak, 1987. "Expected utility with purely subjective non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 16(1), pages 65-88, February.
  18. Neeman, Zvika, 1996. "Approximating Agreeing to Disagree Results with Commonp-Beliefs," Games and Economic Behavior, Elsevier, vol. 12(1), pages 162-164, January.
  19. Wakker, Peter P, 2001. "Testing and Characterizing Properties of Nonadditive Measures through Violations of the Sure-Thing Principle," Econometrica, Econometric Society, vol. 69(4), pages 1039-59, July.
  20. Gilboa Itzhak & Schmeidler David, 1993. "Updating Ambiguous Beliefs," Journal of Economic Theory, Elsevier, vol. 59(1), pages 33-49, February.
  21. Alexander Zimper, 2007. "Half empty, half full and the possibility of agreeing to disagree," Working Papers 58, Economic Research Southern Africa.
  22. Morris, Stephen, 1994. "Trade with Heterogeneous Prior Beliefs and Asymmetric Information," Econometrica, Econometric Society, vol. 62(6), pages 1327-47, November.
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