UiS Working Papers in Economics and Finance,
University of Stavanger

Abstract: Where do prior beliefs come from and how do decisionmakers ascribe confidence in a theory before probabilities are available? To address these questions, we outline an axiomatic approach for selection of priors, where the reasoner is misspecification averse, and exhibits rare event sophistication. A crucial role is played by the dependence between candidate priors. Less dependent priors allow the reasoner to hedge misspecification bias relative to any given benchmark prior. The framework accommodates belief disagreement, since reasoners with relatively less tolerance for dependence select more diverse priors.

Keywords: Belief Disagreement; Discovery Decision; Latent Probability; Subjective Evidence

JEL-codes: A10

11 pages, September 11, 2014

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