Theoretical Economics, Volume 3, Number 2 (July 2008)

Theoretical Economics 3 (2008), 193–229

Non-Bayesian updating: A theoretical framework

Larry G. Epstein, Jawwad Noor, Alvaro Sandroni


This paper models an agent in a multi-period setting who does not update according to Bayes' Rule, and who is self-aware and anticipates her updating behavior when formulating plans. Choice-theoretic axiomatic foundations are provided to capture updating biases that reflect excessive weight given to either prior beliefs, or alternatively, to observed data. A counterpart of the exchangeable Bayesian learning model is also described.

Keywords: Non-Bayesian updating, temptation and self-control, overreaction, underreaction, learning, law of small numbers

JEL classification: D81

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