An Axiomatic Model of Non-Bayesian Updating

This paper models an agent in a three-period setting who does not update according to Bayes’Rule, and who is self-aware and anticipates her updating behavior when formulating plans. The agent is rational in the sense that her dynamic behavior is derived from a stable preference order on a domain of state-contingent menus of acts. A representation theorem generalizes (the dynamic version of) Anscombe-Aumann’s theorem so that both the prior and the way in which it is updated are subjective. The model can generate updating biases analogous to those observed by psychologists. Department of Economics, University of Rochester, Rochester, NY 14627, lepn@ troi.cc.rochester.edu. I have bene…tted from comments by two referees, an editor, David Easley, Massimo Marinacci, Jawaad Noor, Francesco Squintani, seminar participants at Cornell, UC Irvine, UCSD and Stanford, and especially from Igor Kopylov, Mark Machina and Uzi Segal.