Identifying Belief-dependent Preferences
Salonia Enrico Mattia
CEIS Research Paper
Why are investors overconfident and trade excessively? Why do patients at health risk avoid testing? Why are voters polarised? Possibly because their beliefs directly influence their well-being, i.e., they have belief-dependent preferences. However, existing theories of belief-dependent preferences struggle to generate testable predictions or to identify simultaneously beliefs and preferences. This paper addresses these issues by providing an axiomatic characterization of a class of preferences and belief-updating rules that deviate from Bayesian updating. Preferences, beliefs, and updating rules are identified from choices over contingent menus, each entailing a menu of acts available at a later time contingent on an uncertain state of the world. The results provide a theory-based approach to experimental designs to test information avoidance, distortion, and other behaviours consistent with beliefdependent preferences.
 
 
Number: 599
Keywords: Belief-dependent preferences, Non-Bayesian updating, Information avoidance, Belief distortion, Contingent menus
JEL codes: D03, D81, D83, D91
Volume: 23
Issue: 3
Date: Thursday, May 29, 2025
Revision Date: Thursday, May 29, 2025