Bayesian Networks and Boundedly Rational Expectations
Ran Spiegler ()
No 10062, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Abstract:
I present a framework for analyzing decision makers with an imperfect understanding of their environment's correlation structure. The decision maker faces an objective multivariate probability distribution (his own action is one of the random variables). He is characterized by a directed acyclic graph over the set of variables. His subjective belief filters the objective distribution through his graph, via the factorization formula for Bayesian networks. This belief distortion implies that the decision maker's long-run behavior may affect his perception of the consequences of his actions. Accordingly, I define a "personal equilibrium" notion of optimal choices. I show how recent models of boundedly rational expectations (as well as new ones, e.g. reverse causality) can be subsumed into this framework as special cases. Some general properties of the Bayesian-network representation of subjective beliefs are presented, as well as a "missing data" foundation.
Keywords: Bayesian networks; Boundedly rational expectations; Coarse reasoning; Directed acyclic graphs; Misspecified models; Personal equilibrium; Reverse causality (search for similar items in EconPapers)
JEL-codes: D03 (search for similar items in EconPapers)
Date: 2014-07
New Economics Papers: this item is included in nep-hpe, nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)
Downloads: (external link)
https://cepr.org/publications/DP10062 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
Related works:
Journal Article: Bayesian Networks and Boundedly Rational Expectations (2016) 
Working Paper: Bayesian Networks and Boundedly Rational Expectations (2014) 
Working Paper: Bayesian Networks and Boundedly Rational Expectations (2014) 
Working Paper: Bayesian networks and boundedly rational expectations (2014) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:10062
Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP10062
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().