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Question 6 (20 points). Updating Biases A. (5 points) Teddy is a gullible fellow. When he hears a new rumor, he tends to believe it

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Question 6 (20 points). Updating Biases A. (5 points) Teddy is a gullible fellow. When he hears a new rumor, he tends to believe it much more than is warranted. Teddy overinfers from new information. Show how the odds form of Bayes' rule can be used to model Teddy's learning process. B. (5 points) Given this learning process, does Teddy exhibit recency bias? I.e. does he overweight recent signals relative to older ones more than the Bayesian benchmark suggest that he should? Show your work. C. (5 points) It turns out, Teddy is even worse at learning than previously thought. He overinfers from new information and neglects his base rate! Use the odds form of Bayes' rule to model Teddy's learning process. D. (5 points) Given the learning process in the previous question, for what values of the weighting parameters does Teddy exhibit recency bias? For what values does he exhibit the opposite (overweighting of old signals)? Show your work

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