WP 2012-08 Subjective Bayesian Beliefs

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Published in 2015 in Journal of Risk & Uncertainty, Volume 50.

ABSTRACT. A large literature suggests that many individuals do not apply Bayes Rule correctly when making decisions that depend on them correctly pooling prior information and sample data. We replicate and extend a classic experimental study of Bayesian updating from psychology, employing the methods of experimental economics, with careful controls for the confounding effects of risk aversion. Our results show that risk aversion significantly alters inferences on deviations from Bayes Rule.