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Evaluating Ambiguous Random Variables and Updating by Proxy

Author

Listed:
  • Faruk Gul

    (Princeton University)

  • Wolfgang Pesendorfer

    (Princeton University)

Abstract

We introduce a new theory of belief revision under ambiguity. It is recursive (random variables are evaluated by backward induction) and consequentialist (the conditional expectation of any random variable depends only on the values the random variable attains on the conditioning event). Agents experience no change in preferences but may not be indifferent to the timing of resolution of uncertainty. We provide three main theorems: the first relates our rule to standard Bayesian updating; the others characterize the dynamic behavior of an agent who adopts our rule.

Suggested Citation

  • Faruk Gul & Wolfgang Pesendorfer, 2018. "Evaluating Ambiguous Random Variables and Updating by Proxy," Working Papers 2018-7, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2018-7
    as

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    File URL: http://www.princeton.edu/~pesendor/Updating.pdf
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    References listed on IDEAS

    as
    1. Paolo Ghirardato & Massimo Marinacci, 2001. "Risk, Ambiguity, and the Separation of Utility and Beliefs," Mathematics of Operations Research, INFORMS, vol. 26(4), pages 864-890, November.
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    8. ,, 2016. "Condorcet meets Ellsberg," Theoretical Economics, Econometric Society, vol. 11(3), September.
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    Cited by:

    1. Lorenzo Bastianello & José Heleno Faro, 2023. "Choquet expected discounted utility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(4), pages 1071-1098, May.
    2. Javier D. Donna, 2024. "Redistributive politics under ambiguity," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 62(3), pages 583-607, May.

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    More about this item

    Keywords

    Radom Variables; Ambiguity;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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