Conservative Updating

Matthew Kovach

Papers from arXiv.org

Abstract: This paper provides a behavioral analysis of conservatism in beliefs. I introduce a new axiom, Dynamic Conservatism, that relaxes Dynamic Consistency when information and prior beliefs "conflict." When the agent is a subjective expected utility maximizer, Dynamic Conservatism implies that conditional beliefs are a convex combination of the prior and the Bayesian posterior. Conservatism may result in belief dynamics consistent with confirmation bias, representativeness, and the good news-bad news effect, suggesting a deeper behavioral connection between these biases. An index of conservatism and a notion of comparative conservatism are characterized. Finally, I extend conservatism to the case of an agent with incomplete preferences that admit a multiple priors representation.

Date: 2021-01
New Economics Papers: this item is included in nep-evo, nep-mic and nep-upt
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2102.00152

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