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An Axiomatic Model of Non-Bayesian Updating

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Author Info
Larry Epstein () (University of Rochester)

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Abstract

This paper models an agent in a three-period setting who does not update according to Bayes'Rule, and who is self-aware and anticipates her updating behavior when formulating plans. The agent is rational in the sense that her dynamic behavior is derived from a single stable preference order on a domain of state-contingent menus of acts. A representation theorem generalizes the (dynamic version of) Anscombe-Aumann's theorem so that both the prior and the way in which it is updated are subjective.

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File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_521.pdf
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Publisher Info
Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 521.

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Length: 36 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:roc:rocher:521

Note: Forthcoming in Review of Economic Studies
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Postal: UNIVERSITY OF ROCHESTER, CENTER FOR ECONOMIC RESEARCH, DEPARTMENT OF ECONOMICS, HARKNESS 231 ROCHESTER NEW YORK 14627 U.S.A.

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Related research
Keywords: Bayes' Rule non-Bayesian updating asset price volatility no-trade theorems agreeing to bet common knowledge temptation self-control conservatism representativeness overconfidence

Other versions of this item:

Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
D9 - Microeconomics - - Intertemporal Choice and Growth

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Faruk Gul & Wolfgang Pesendorfer, 2004. "Self-Control and the Theory of Consumption," Econometrica, Econometric Society, vol. 72(1), pages 119-158, 01. [Downloadable!] (restricted)
    Other versions:
  2. Larry G. Epstein & Martin Schneider, 2001. "Recursive Multiple-Priors," RCER Working Papers 485, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
    Other versions:
  3. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March. [Downloadable!] (restricted)
  4. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 2006. "Temptation–Driven Preferences," Boston University - Department of Economics - Macroeconomics Working Papers Series WP2006-024, Boston University - Department of Economics. [Downloadable!]
  5. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 2005. "Temptation–Driven Preferences," Boston University - Department of Economics - Working Papers Series WP2005-005, Boston University - Department of Economics. [Downloadable!]
    Other versions:
  6. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  7. 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. [Downloadable!]
    Other versions:
  8. Alon Brav & J.B. Heaton, 2002. "Competing Theories of Financial Anomalies," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(2), pages 575-606, March.
  9. Salvador Barberà & Birgit Grodal, 2002. "Preference for Flexibility and the Opportunities of Choice," Discussion Papers 02-22, University of Copenhagen. Department of Economics. [Downloadable!]
  10. Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, vol. 69(6), pages 1403-1435, November. [Downloadable!] (restricted)
    Other versions:
  11. Klaus Nehring, 1999. "Preference for Flexibility in a Savage Framework," Econometrica, Econometric Society, vol. 67(1), pages 101-120, January.
  12. Ozdenoren, Emre, 2002. "Completing the State Space with Subjective States," Journal of Economic Theory, Elsevier, vol. 105(2), pages 531-539, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Perea,Andrés, 2005. "A Model of Minimal Probabilistic Belief Revision," Research Memoranda 034, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  2. Chambers, Christopher P. & Hayashi, Takashi, 2005. "Bayesian consistent prior selection," Working Papers 1238, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
    Other versions:
  3. Larry G. Epstein & Alvaro Sandroni, 2003. "Non-Bayesian Updating : A Theoretical Framework," RCER Working Papers 505, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
    Other versions:
  4. Sadowski, Philipp, 2008. "Conditional Preference for Flexibility: Eliciting Beliefs from Behavior," MPRA Paper 8614, University Library of Munich, Germany. [Downloadable!]
  5. Takashi Hayashi, 2008. "Context dependence and consistency in dynamic choice under uncertainty: the case of anticipated regret," Working Papers 659, Kyoto University, Institute of Economic Research. [Downloadable!]
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