Three papers on belief updating and its applications

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Virginia Tech


The normative foundation (axioms) of Bayesian belief updating has long been established in the literature of decision science. However, psychology and experiments suggest that while rational decision making is ideal, it is rarely achievable for ordinary people. Therefore, it is important to explore the foundations and consequences of rational decision making within the field of economics. This thesis involves three papers on this. In the first paper, I explore the consequences of wishful thinking on mechanism design. It suggests that wishful thinking bias could be profit-generating for mechanism designers. In the second paper, I investigate conservative updating and provide a foundation for it. The main behavioral axiom, ``conservative consistency," suggests that decision-makers may partially incorporate information, particularly when it requires them to revise their previous preferences (the preferences order according to their prior belief). In the third paper, I reframe the model selection problem as a rational decision-making problem. The decision-maker is restricted to choosing an advisor to delegate their choices. I explore the conditions under which a rational decision-maker selects models (or advisors) according to Bayes factor criteria.



Non Bayesian Updating, Belief Updating, Mechanism Design