Evaluating Ambiguous Random Variables and Updating by Proxy

Faruk Gul and Wolfgang Pesendorfer
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Faruk Gul: Princeton University
Wolfgang Pesendorfer: Princeton University

Working Papers from Princeton University. Economics Department.

Abstract: We introduce a new theory of belief revision under ambiguity. It is recursive (random variables are evaluated by backward induction) and consequentialist (the conditional expectation of any random variable depends only on the values the random variable attains on the conditioning event). Agents experience no change in preferences but may not be indifferent to the timing of resolution of uncertainty. We provide three main theorems: the first relates our rule to standard Bayesian updating; the others characterize the dynamic behavior of an agent who adopts our rule.

Keywords: Radom Variables; Ambiguity (search for similar items in EconPapers)
JEL-codes: D01 (search for similar items in EconPapers)
Date: 2018-06
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2018-7

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