Believe and Let Believe: Axiomatic Foundations for Belief Dependent Utility Functionals

Leeat Yariv

No 1344, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: A large body of experimental data demonstrates that people's beliefs influence their well-being beyond the indirect effect through the actions taken. I present a model that incorporates beliefs into an agent's utility function. The paper provides axiomatic foundations for a special class of non-additive utility indices defined over infinite streams of beliefs and actions. I assume that: 1) there exists a (null) belief that does not have any effect on future preferences; 2) the agent has finite memory -- only finite histories have an effect on current preferences; and 3) if the agent knows she will not be getting any additional future information, she prefers today's beliefs to be consistent with her past choices. Preferences satisfying these assumptions admit a generalized discounted utility representation in which all terms depend on both actions and beliefs. Experimental testability of the proposed framework is also discussed.

Keywords: Axiomatic foundations; beliefs; time preference; utility (search for similar items in EconPapers)
JEL-codes: C91 D81 D91 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2001-12
References: Add references at CitEc
Citations: View citations in EconPapers (19)

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