Testing dynamic consistency and consequentialism under ambiguity

Han Bleichrodt, Jürgen Eichberger, Simon Grant, David Kelsey and Chen Li

European Economic Review, 2021, vol. 134, issue C

Abstract: Accounting for ambiguity aversion in dynamic decisions generally implies that either dynamic consistency or consequentialism must be given up. To gain insight into which of these principles better describes people’s preferences, we tested them using a variation of Ellsberg’s three-color urn experiment. Subjects were asked to make a choice both before and after they received a signal. We found that most ambiguity neutral subjects satisfied both dynamic consistency and consequentialism and behaved consistent with subjective expected utility with Bayesian updating. The majority of ambiguity averse subjects satisfied consequentialism, but violated dynamic consistency.

Keywords: Ambiguity; Three-color Ellsberg paradox; Consequentialism; Dynamic consistency (search for similar items in EconPapers)
JEL-codes: C72 D81 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Testing Dynamic Consistency and Consequentialism under Ambiguity (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:134:y:2021:i:c:s0014292121000404

DOI: 10.1016/j.euroecorev.2021.103687

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