Reverse Bayesianism: Revising Beliefs in Light of Unforeseen Events

Christoph K. Becker, Tigran Melkonyan (), Eugenio Proto, Andis Sofianos and Stefan Trautmann

No 8662, CESifo Working Paper Series from CESifo

Abstract: Bayesian updating is the dominant theory of learning. However, the theory is silent about how individuals react to events that were previously unforeseeable or unforeseen. Building on a recently developed axiomatic framework to analyze such situations, we test if subjects update their beliefs according to “reverse Bayesianism”, under which the relative likelihoods of prior beliefs remain unchanged after an unforeseen event materializes. We develop two experiments that entail unforeseen events and find that participants do not systematically deviate from reverse Bayesianism. However, we do find well-known violations of Bayesian updating. Decision makers seem to be ex ante unaware - they do not expect outcomes that they have not yet observed or have not been informed about. At the same time, we find instances of both increased and decreased awareness after exposure to unforeseen events.

Keywords: reverse Bayesianism; unforeseen; unawareness; Bayesian updating (search for similar items in EconPapers)
JEL-codes: C11 C91 D83 D84 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-exp and nep-hpe
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Related works:
Working Paper: Reverse Bayesianism: Revising Beliefs in Light of Unforeseen Events (2020)
Working Paper: Reverse Bayesianism: Revising Beliefs in Light of Unforeseen Events (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8662

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