Abstract

http://ssrn.com/abstract=2263504
 


 



Updating Beliefs with Ambiguous Evidence: Implications for Polarization


Roland G. Fryer Jr.


Harvard University - Department of Economics; National Bureau of Economic Research (NBER); American Bar Foundation; University of Chicago

Philipp Harms


Harvard University - Department of Economics

Matthew O. Jackson


Stanford University - Department of Economics; Santa Fe Institute; Canadian Institute for Advanced Research (CIFAR)

July 1, 2013


Abstract:     
We introduce and analyze a model in which agents observe sequences of signals about the state of the world, some of which are ambiguous and open to interpretation. Instead of using Bayes' rule on the whole sequence, our decision makers use Bayes' rule in an iterative way: first to interpret each signal and then to form a posterior on the whole sequence of interpreted signals. This technique is computationally efficient, but loses some information since only the interpretation of the signals is retained and not the full signal. We show that such rules are optimal if agents sufficiently discount the future; while if they are very patient then a time-varying random interpretation rule becomes optimal. One of our main contributions is showing that the model provides a formal foundation for why agents who observe exactly the same stream of information can end up becoming increasingly polarized in their posteriors.

Number of Pages in PDF File: 22

Keywords: beliefs, polarization, learning, updating, Bayesian updating, biases, discrimination, decision making

JEL Classification: D10, D80, J15, J71, I30

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Date posted: June 5, 2013 ; Last revised: July 27, 2013

Suggested Citation

Fryer, Roland G. and Harms, Philipp and Jackson, Matthew O., Updating Beliefs with Ambiguous Evidence: Implications for Polarization (July 1, 2013). Available at SSRN: http://ssrn.com/abstract=2263504 or http://dx.doi.org/10.2139/ssrn.2263504

Contact Information

Roland G. Fryer Jr.
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
American Bar Foundation
750 N. Lake Shore Drive
Chicago, IL 60611
United States
University of Chicago ( email )
1101 East 58th Street
Chicago, IL 60637
United States
Philipp Harms
Harvard University - Department of Economics ( email )
1875 Cambridge Street
Cambridge, MA 02138
United States
Matthew O. Jackson (Contact Author)
Stanford University - Department of Economics ( email )
Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
1-650-723-3544 (Phone)
HOME PAGE: http://www.stanford.edu/~jacksonm
Santa Fe Institute
1399 Hyde Park Road
Santa Fe, NM 87501
United States
Canadian Institute for Advanced Research (CIFAR) ( email )
180 Dundas Street West, Suite 1400
Toronto, Ontario
Canada
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