16:00 - 17:30
Thu-PS3
Chair/s:
Till Weber
Room: Floor 3, Accenture
Till Weber - The Role of Payoff Parameters for Cooperation in the One-Shot Prisoner's Dilemma
Andis Sofianos - Reverse Bayesianism: Revising Beliefs in Light of Unforeseen Events
Anna Bernard - How do music market changes affect consumer demand and welfare? An experimental approach
Javier Rodero Cosano - Leniency degree and cartel (in)stability in the lab
Reverse Bayesianism: Revising Beliefs in Light of Unforeseen Events
Christoph Becker 1, Tigran Melkonyan 2, Eugenio Proto 3, Andis Sofianos 4, Stefan Trautmann 1
1 University of Heidelberg
2 University of Alabama
3 University of Glasgow
4 Durham University
Bayesian updating is the dominant theory of learning. However, the theory is silent about how individuals react to events that were previously unforeseeable or unforeseen. Building on a recently developed axiomatic framework to analyze such situations, we test if subjects update their beliefs according to "reverse Bayesianism", under which the relative likelihoods of prior beliefs remain unchanged after an unforeseen event materializes. We develop two experiments that entail unforeseen events and find that participants do not systematically deviate from reverse Bayesianism. However, we do find well-known violations of Bayesian updating. Decision makers seem to be ex ante unaware - they do not expect outcomes that they have not yet observed or have not been informed about. At the same time, we find instances of both increased and decreased awareness after exposure to unforeseen events.