Journal Article

An Axiomatic Model of Non-Bayesian Updating

Larry G. Epstein

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 73, issue 2, pages 413-436
Published in print April 2006 | ISSN: 0034-6527
Published online April 2006 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2006.00381.x
An Axiomatic Model of Non-Bayesian Updating

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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 behaviour when formulating plans. Gul and Pesendorfer's theory of temptation and self-control is a key building block. The main result is a representation theorem that generalizes (the dynamic version of) Anscombe-Aumann's theorem so that both the prior and the way in which it is updated are subjective. The model can accommodate updating biases analogous to those observed by psychologists.

Keywords: D83

Journal Article.  11277 words.  Illustrated.

Subjects: Information, Knowledge, and Uncertainy

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