Scandinavian Working Papers in Economics

UiS Working Papers in Economics and Finance,
University of Stavanger

No 2014/14: Demand-Theoretic Approach to Choice of Priors,

Loran Chollete (loran.chollete@uis.no) and David Schmeidler
Additional contact information
Loran Chollete: UiS, Postal: University of Stavanger, NO-4036 Stavanger, Norway
David Schmeidler: Tel Aviv University

Abstract: Decision theory has relatively little to say about the formal choice of priors. We pursue the issue of prior choice in a framework that builds on consumer theory. We analyze discovery decisions of a reasoner, in an environment of hypotheses with heterogeneous, subjective plausibility. We illustrate implications for equilibrium selection when hypotheses that differ in terms of optimism are selected from a distribution with latent probabilities.

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

JEL-codes: A10

17 pages, September 2, 2014

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