Hypothesis Testing and Ambiguity Aversion

Pietro Ortoleva

Rivista di Politica Economica, 2014, issue 3, 45-64

Abstract: We study a model of non-Bayesian updating for ambiguity averse agents, based on the Hypothesis Testing model of Ortoleva (2012). Agents have a set of priors that they update as follows. If all priors assign to new information a probability above a threshold, they update every prior using Bayes rule. Otherwise: they look at a prior over sets of priors, update it, and choose the set to which the prior over sets of priors assigns the highest likelihood. When the threshold is zero this coincides with Bayesian updating when defined, but it also prescribes behavior when it is not defined.

Keywords: Bayes’ rule; updating; dynamic coherence; dynamic consistency; unambiguous preferences; ambiguity aversion. (search for similar items in EconPapers)
JEL-codes: C61 D80 D81 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:rpo:ripoec:y:2014:i:3:p:45-64

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