Models of Subjective Learning
University of Pennsylvania - Department of Economics
Duke University - Department of Economics
December 12, 2011
PIER Working Paper No. 11-042
We study a decision maker who faces a dynamic decision problem in which the process of information arrival is subjective. By studying preferences over menus of acts, we derive a sequence of utility representations that captures the decision maker’s uncertainty about the beliefs he will hold when choosing from a menu. In the most general model of second-order beliefs, we characterize a notion of "more preference for flexibility" via a subjective analogue of Blackwell’s (1951, 1953) comparisons of experiments. We proceed to analyze a model in which signals are subsets of the state space. The corresponding representation enables us to compare the behavior of two decision makers who expect to learn differently, even if they do not agree on their prior beliefs. The class of information systems that can support such a representation generalizes the notion of modeling information as a partition of the state space. We apply the model to study a decision maker who anticipates subjective uncertainty to be resolved gradually over time. We derive a representation that uniquely identifies both the filtration, which is the timing of information arrival with the sequence of partitions it induces, and the decision maker’s prior beliefs.
Number of Pages in PDF File: 39
Keywords: Resolution of uncertainty, second-order beliefs, preference for flexibility, valuing binary bets more, generalized partition
JEL Classification: D80, D81working papers series
Date posted: December 13, 2011
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