Ordered Surprises and Conditional Probability Systems

Adam Dominiak, Matthew Kovach and Gerelt Tserenjigmid

Papers from arXiv.org

Abstract: We study conditioning on null events, or surprises, and behaviorally characterize the Ordered Surprises (OS) representation of beliefs. For feasible events, our Decision Maker (DM) is Bayesian. For null events, our DM considers a hierarchy of beliefs until one is consistent with the surprise. The DM adopts this prior and applies Bayes' rule. Unlike Bayesian updating, OS is a complete updating rule: conditional beliefs are well-defined for any event. OS is (behaviorally) equivalent to the Conditional Probability System (Myerson, 1986b) and is a special case of Hypothesis Testing (Ortoleva, 2012), clarifying the relationships between the various approaches to null events.

Date: 2022-08, Revised 2022-08
New Economics Papers: this item is included in nep-dcm and nep-mic
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