Abstract To accurately predict rewards associated with states or actions, the variability of observations has to be taken into account. In particular, when the observations are noisy, the individual rewards should have less influence on tracking of average reward, and the estimate of the mean reward should be updated to a smaller extent after each observation. However, it is not known how the magnitude of the observation noise might be tracked and used to control prediction updates in the brain reward system. Here, we introduce a new model that uses simple, tractable learning rules that track the mean and standard deviation of reward, and leverages prediction errors scaled by uncertainty as the central feedback signal. We provide a normative analysis, comparing the performance of the new model with that of conventional models in a value tracking task. We find that the new model has an advantage over conventional models when tested across various levels of observation noise. Further, we propose a possible biological implementation of the model in the basal ganglia circuit. The scaled prediction error feedback signal is consistent with experimental findings concerning dopamine prediction error scaling relative to reward magnitude, and the update rules are found to be consistent with many features of striatal plasticity. Our results span across the levels of implementation, algorithm, and computation, and might have important implications for understanding the dopaminergic prediction error signal and its relation to adaptive and effective learning. Author Summary The basal ganglia system is a collection of subcortical nuclei in the mammalian brain. This system and its dopaminergic inputs are associated with learning from rewards. Here, dopamine is thought to signal errors in reward prediction. The structure and function of the basal ganglia system are not fully understood yet—for example, the basal ganglia are split into two antagonistic pathways, but the reason for this split and the role of the two pathways are unknown. Further, it has been found that under some circumstances, rewards of different sizes lead to dopamine responses of similar size, which cannot be explained with the reward prediction error theory. Here, we propose a new model of learning in the basal ganglia—the scaled prediction error model. According to our model, both reward average and reward uncertainty are tracked and represented in the two basal ganglia pathways. The learned reward uncertainty is then used to scale dopaminergic reward prediction errors, which effectively renders learning adaptive to reward noise. We show that such learning is more robust than learning from unscaled prediction errors and that it explains several physiological features of the basal ganglia system.