An Axiomatic Model of Non-Bayesian Updating

Abstract

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 behaviour when formulating plans. Gul and Pesendorfer's theory of temptation and self-control is a key building block. The main result is a representation theorem that 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 accommodate updating biases analogous to those observed by psychologists.