Why people do or do not change their beliefs has been a long-standing puzzle. Sometimes people hold onto false beliefs despite ample contradictory evidence; sometimes they change their beliefs without sufficient reason. Here, I propose that the utility of a belief is derived from the potential outcomes of holding it. Outcomes can be internal (e.g., positive/negative feelings) or external (e.g., material gain/loss), and only some are dependent on belief accuracy. Belief change can then be understood as an economic transaction, in which the multidimensional utility of the old belief is compared against that of the new belief. Change will occur when potential outcomes alter across attributes, for example due to changing environments, or when certain outcomes are made more or less salient.

In this chapter we summarize how economists conceptualize beliefs. Moving both backward and forward in time, we review the way that mainstream economics currently deals with beliefs, as well as, briefly, the history of economists’ thinking about beliefs. Most importantly, we introduce the reader to a recent, transformational movement in economics that focuses on belief-based utility. This approach challenges the standard economic assumption that beliefs are only an input to decision making and examines implications of the intuitive idea that people derive pleasure and pain directly from their beliefs. We also address the question of when and why people care about what other people believe. We close with a discussion of the implications of these insights for contemporary social issues such as political polarization and fake news.