Bayesian Inference and Non-Bayesian Prediction and Choice: Foundations and an Application to Entry Games with Multiple Equilibria

We generalize de Finetti’s exchangeable Bayesian model to accommodate ambiguity. As a central motivating example, we consider a policy maker facing a cross-section of markets in which …rms play an entry game. Her theory is Nash equilibrium and it is incomplete because there are multiple equilibria and she does not understand how equilibria are selected. This leads to partial identi…cation of parameters when drawing inferences from realized outcomes in some markets and to ambiguity when considering (policy) decisions for other markets. We model both her inference and choice.