Conditional Hypothesis Testing Systems Under Non-Bayesian Updating

We introduce the notion of a Conditional Hypothesis Testing System (CHTS) that specifies the concrete mode of non-Bayesian reactions for unexpected news in a conditional world. We show that Ortoleva's (2012) Hypothesis Testing Model (HTM) gives rise to a CHTS and thus provides an axiomatic characterization of CHTS. In addition, we show that the HTM updating rule is order independent---i.e., the order of receiving information does not influence the final posterior under the non-Bayesian updating rule. The notion of CHTS can be used to derive the conditional-probability-system expected utility model of Myerson (1986a). The study enhances our understanding of HTM in a conditional world. JEL Classification: D81, D83