PagedListAdapter does not update list if just the content of an item changes

I think the problem is not the way you are loading the new data, but updating the data. Although you haven't show us the part where you triggers item update or how the actual update happens, I am guessing, sorry if I was wrong, you might be directly editting the list element like this:

category = adapter.getItemAt(/*item position*/)
category.name = "a new name"
category.color = 5
categoryViewModel.update(category)

Instead, you should create a new Category object instead of modifying existing ones, like this:

prevCategory = adapter.getItemAt(/*put position*/) // Do not edit prevCategory!
newCategory = Category(id=prevCategory.id, name="a new name", color=5, iconId=0)
categoryViewModel.update(newCategory)

The idea of creating a whole new fresh object every time you want to make even the smallest change is something might not be so obvious at first, but this reactive implementation relies on the assumption that each event is independent of other events. Making your data class immutable, or effectively immutable will prevent this issue.

What I like to do to avoid this kind of mistake, I always make every field in my data class final.

@Entity(tableName = Database.Table.CATEGORIES)
data class Category(
    @PrimaryKey(autoGenerate = true) @ColumnInfo(name = ID) val id: Long = 0,
    @ColumnInfo(name = NAME) val name: String = "",
    @ColumnInfo(name = ICON_ID) val iconId: Int = 0,
    @ColumnInfo(name = COLOR) @ColorInt val color: Int = DEFAULT_COLOR
)