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Learning the Krepsian State: Exploration Through Consumption

Roee Teper

No 5860, Working Paper from Department of Economics, University of Pittsburgh

Abstract: We take the Krepsian approach to provide a behavioral foundation for a class of responsive subjective learning processes. In contrast to the standard subjective state spacemodels, the resolution of uncertainty regarding the true state is an endogenous process that depends on the decision maker's actions. In addition, there need not be fullresolution of uncertainty between periods. When the decision maker chooses what to consume, she also chooses the information structure to which she will be exposed. When sheconsumes outcomes, she learns her relative preference between them; after each consumption history, the decision maker's information structure is a re nement of the previousinformation structure. We provide the behavioral restrictions corresponding to an innite horizon, recursive representation that exhibits such a learning process. Moreover,through the incorporation of dynamics we are able to identify the set of preferences thedecision maker believes possible after each history of consumption. That is, we identifythe unique subjective state space without appealing to an environment with risk

Date: 2016-01
New Economics Papers: this item is included in nep-mic
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