Induced Preferences, Dynamic Consistency and Dutch Books

David Kelsey and Frank Milne

Economica, 1997, vol. 64, issue 255, 471-481

Abstract: We assume that a decision‐maker has expected utility preferences over a large space which includes some variables not observable by the theorist. These will induce preferences over observable variables, which typically will not have the expected utility form. This paper focuses on implications for multi‐period decisions. We show that such preferences are not vulnerable to ‘Dutch books’. In particular, we consider preferences arising from non‐additive subjective probabilities and show how they can arise as induced preferences.

Date: 1997
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