Updating Preferences with Multiple Priors

Hanany, E. and Klibanoff, P. “Updating preferences with multiple priors.” Theoretical Economics, 2, 2007, pp. 261-298.

Posted: 1 May 2006 Last revised: 26 Feb 2021

Date Written: 2007

Abstract

We propose and axiomatically characterize dynamically consistent update rules for decision making under ambiguity. These rules apply to the preferences with multiple priors of Gilboa and Schmeidler (1989), and are the first, for any model of preferences over acts, to be able to reconcile typical behavior in the face of ambiguity (as exemplified by Ellsberg's paradox) with dynamic consistency for all non-null events. Updating takes the form of applying Bayes' rule to subsets of the set of priors, where the specific subset depends on the preferences, the conditioning event, and the choice problem (i.e., a feasible set of acts together with an act chosen from that set).

Keywords: Updating, dynamic consistency, ambiguity, Ellsberg, Bayesian, consequentialism

JEL Classification: D81, D83, D91

Suggested Citation

Hanany, Eran and Klibanoff, Peter, Updating Preferences with Multiple Priors (2007). Hanany, E. and Klibanoff, P. “Updating preferences with multiple priors.” Theoretical Economics, 2, 2007, pp. 261-298., Available at SSRN: https://ssrn.com/abstract=899006 or http://dx.doi.org/10.2139/ssrn.899006

Eran Hanany

Tel Aviv University - Faculty of Engineering ( email )

Tel Aviv 69978
Israel

Peter Klibanoff (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-5153 (Phone)
847-467-1220 (Fax)

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