Bayesian Economics

Bayesian economics uses Bayesian probability theory to update beliefs and make decisions based on new information. It views economic agents—people, firms, policymakers—as constantly learning and adjusting their expectations about uncertain events, like markets or policy impacts. When new data arrives, they revise their beliefs (or probabilities) accordingly, leading to more informed decision-making. This approach provides a systematic way to incorporate uncertainty and adapt to changing environments, improving the understanding of economic behaviors and outcomes over time.