COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1811 Dynamics of Inductive Inference in a Unified Framework Itzhak Gilboa, Larry Samuelson and David Schmeidler July 2011 We present a model of inductive inference that includes, as special
cases, Bayesian reasoning, case-based reasoning, and rule-based reasoning. This unified
framework allows us to examine, positively or normatively, how the various modes of
inductive inference can be combined and how their relative weights change endogenously. We
establish conditions under which an agent who does not know the structure of the data
generating process will decrease, over the course of her reasoning, the weight of credence
put on Bayesian vs. non-Bayesian reasoning. We show that even random data can make certain
theories seem plausible and hence increase the weight of rule-based vs. case-based
reasoning, leading the agent in some cases to cycle between being rule-based and
case-based. We identify conditions under which minmax regret criteria will not be
effective. |
