Active Learning with a Misspecified Prior

Citation:

Fudenberg D, Romanyuk G, Strack P. Active Learning with a Misspecified Prior. Theoretical Economics [Internet]. 2017;12 :1155–1189.
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Abstract:

We study learning and information acquisition by a Bayesian agent whose prior belief is misspecified in the sense that it assigns probability zero to the true state of the world. At each instant, the agent takes an action and observes the corresponding payoff, which is the sum of a fixed but unknown function of the action and an additive error term. We provide a complete characterization of asymptotic actions and beliefs when the agent’s subjective state space is a doubleton. A simple example with three actions shows that in a misspecified environment a myopic agent’s beliefs converge while a sufficiently patient agent’s beliefs do not. This illustrates a novel interaction between misspecification and the agent’s subjective discount rate.

 

Publisher's Version

Last updated on 01/21/2019