Conservative Updating
Abstract
This paper provides a behavioral analysis of conservatism in beliefs. I introduce a new axiom, Dynamic Conservatism, that relaxes Dynamic Consistency when information and prior beliefs "conflict." When the agent is a subjective expected utility maximizer, Dynamic Conservatism implies that conditional beliefs are a convex combination of the prior and the Bayesian posterior. Conservatism may result in belief dynamics consistent with confirmation bias, representativeness, and the good news-bad news effect, suggesting a deeper behavioral connection between these biases. An index of conservatism and a notion of comparative conservatism are characterized. Finally, I extend conservatism to the case of an agent with incomplete preferences that admit a multiple priors representation.
Cite
@article{arxiv.2102.00152,
title = {Conservative Updating},
author = {Matthew Kovach},
journal= {arXiv preprint arXiv:2102.00152},
year = {2021}
}