Subjective Contingencies and Limited Bayesian Updating | Zendy

Stefania Minardi | Zendy; Andrei Savochkin | Zendy

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Subjective Contingencies and Limited Bayesian Updating

Author(s) -

Stefania Minardi,

Andrei Savochkin

Publication year - 2017

Publication title -

ssrn electronic journal

Language(s) - English

Resource type - Journals

ISSN - 1556-5068

DOI - 10.2139/ssrn.2962260

Subject(s) - bayesian probability , preference , set (abstract data type) , state space , representation (politics) , subjective expected utility , relevance (law) , computer science , perspective (graphical) , artificial intelligence , space (punctuation) , bayesian inference , separable space , perception , expected utility hypothesis , econometrics , machine learning , mathematics , psychology , mathematical economics , statistics , mathematical analysis , neuroscience , politics , political science , law , programming language , operating system

We depart from Savage’s (1954) common state space assumption and introduce a model that allows for a subjective understanding of uncertainty. Within the revealed preference paradigm, we uniquely identify the agent’s subjective state space via her preferences conditional on incoming information. According to our representation, the agent’s subjective contingencies are coarser than the analyst’s states; she uses an additively separable utility with respect to her set of contingencies; and she adopts an updating rule that follows the Bayesian spirit but is limited by her perception of uncertainty. We illustrate our theory with an application to the Confirmatory Bias.

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