Reverse Bayesianism: Revising Beliefs in Light of Unforeseen Events

Bayesian updating is the dominant theory of learning. However, the theory is silent about how
individuals react to events that were previously unforeseeable or unforeseen. We test if subjects
update their beliefs according to reverse Bayesianism, under which the relative likelihoods of prior
beliefs remain unchanged after an unforeseen event materializes. Across two experiments we find that
participants do not systematically deviate from reverse Bayesianism. However, we do find well-known
violations of Bayesian updating. Furthermore, decision makers vary in their ex-ante unawareness
depending on the context.

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