Subjective Bayesian beliefs
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A large literature suggests that many individuals do not apply Bayes’ Rule when making decisions that depend on them correctly pooling prior information and sample data. We replicate and extend a classic experimental study of Bayesian updating from psychology, employing the methods of experimental economics, with careful controls for the confounding effects of risk aversion. Our results show that risk aversion significantly alters inferences on deviations from Bayes’ Rule.
KeywordsBayes’ Rule Subjective beliefs Learning
JEL ClassificationsD03 D81 D83
Harrison thanks the U.S. National Science Foundation for research support under grants NSF/HSD 0527675 and NSF/SES 0616746, and we thank the referee and seminar and conference participants for valuable comments.
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