Preference for Flexibility and Dynamic Consistency

Gil Riella

No 6/2013, Economics and Politics Working Paper Series from Economics and Politics Research Group (EPRG), University of Brasília

Abstract: Dekel, Lipman, and Rustichini (2001) characterize preferences over menus of lotteries that can be represented by the use of a unique subjective state space and a prior. We investigate what would be the appropriate version of Dynamic Consistency in such a setup. The condition we find, which we call Flexibility Consistency, is linked to a comparative theory of preference for flexibility . When the subjective state space is finite, we show that Flexibility Consistency is equivalent to a subjective version of Dynamic Consistency and that it implies that the decision maker is a subjective state space bayesian updater. Later we characterize when a collection of signals can be interpreted as a partition of the subjective state space of the decision maker.

Keywords: Preference for Flexibility; Dynamic Consistency; Bayesian Updating; Subjective State Space (search for similar items in EconPapers)
JEL-codes: D11 D81 (search for similar items in EconPapers)
Date: 2013-06-12
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Persistent link: https://EconPapers.repec.org/RePEc:gvn:eprgwp:62013

DOI: 10.5281/zenodo.23602652

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