Misspecification Aversion and Selection of Initial Priors

Lor Chollete () and David Schmeidler
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Lor Chollete: UiS, Postal: University of Stavanger, NO-4036 Stavanger, Norway

No 2014/13, UiS Working Papers in Economics and Finance from University of Stavanger

Abstract: Where do prior beliefs come from and how do decisionmakers ascribe confidence in a theory before probabilities are available? To address these questions, we outline an axiomatic approach for selection of priors, where the reasoner is misspecification averse, and exhibits rare event sophistication. A crucial role is played by the dependence between candidate priors. Less dependent priors allow the reasoner to hedge misspecification bias relative to any given benchmark prior. The framework accommodates belief disagreement, since reasoners with relatively less tolerance for dependence select more diverse priors.

Keywords: Belief Disagreement; Discovery Decision; Latent Probability; Subjective Evidence (search for similar items in EconPapers)
JEL-codes: A10 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2014-09-11
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:stavef:2014_013

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