Learning the Krepsian state: Exploration through consumption.

We take the Krepsian approach to provide a behavioral foundation for responsive subjective learning processes. In contrast to the standard subjective state space models, the resolution of uncertainty regarding the true state is endogenous and depends on the decision maker's actions. There need not be full resolution of uncertainty between periods. When the decision maker chooses what to consume, she also chooses the information structure to which she will be exposed. When she consumes outcomes, she learns her relative preference between them; after each consumption history, the decision maker's information structure is a refinement of the previous information structure. We provide the behavioral restrictions corresponding to a recursive representation exhibiting such a learning process. Through the incorporation of dynamics we are able to identify the set of preferences the decision maker believes possible after each history of consumption, without appealing to an environment with risk.