The Dynamics of Chosen Beliefs

Abstract

We develop a tractable model of the dynamics of chosen beliefs. An agent derives anticipatory utility from being overly optimistic and overly certain about an underlying state of the world. The agent repeatedly "chooses" what to believe, always naively thinking that this is the one and only time she does so. To feel elated, she must take her chosen belief seriously, both in taking actions and interpreting signals. Our model implies persistent insecurity and fragile optimism in important domains of life as well as dogmatic optimism in less important domains.

Keywords: Belief-Based Utility, Motivated Reasoning, Dogmas, Persistent Insecurity