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Conservative Updating

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  • Matthew Kovach

Abstract

This paper provides a behavioral analysis of conservatism in beliefs. I introduce a new axiom, Dynamic Conservatism, that relaxes Dynamic Consistency when information and prior beliefs "conflict." When the agent is a subjective expected utility maximizer, Dynamic Conservatism implies that conditional beliefs are a convex combination of the prior and the Bayesian posterior. Conservatism may result in belief dynamics consistent with confirmation bias, representativeness, and the good news-bad news effect, suggesting a deeper behavioral connection between these biases. An index of conservatism and a notion of comparative conservatism are characterized. Finally, I extend conservatism to the case of an agent with incomplete preferences that admit a multiple priors representation.

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  • Matthew Kovach, 2021. "Conservative Updating," Papers 2102.00152, arXiv.org.
    • Handle: RePEc:arx:papers:2102.00152
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    References listed on IDEAS

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    Cited by:

    1. Hamza Nidaazzi & Hind Hourmat Allah, 2023. "Cultural Conservatism Of Family Businesses In Morocco: The Missing Piece Of The Puzzle [Le Conservatisme Culturel Des Entreprises Familiales Au Maroc : La Pièce Manquante Du Puzzle]," Post-Print hal-04233346, HAL.
    2. Nidaazzi, Hamza & Hourmat Allah, Hind, 2023. "Le conservatisme culturel des entreprises familiales au Maroc : la pièce manquante du puzzle [Cultural conservatism in Moroccan family businesses: the missing piece of the puzzle]," MPRA Paper 118835, University Library of Munich, Germany.

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