EconPapers    
Economics at your fingertips  
 

Dynamic consistency and ambiguity: A reappraisal

Brian Hill

Games and Economic Behavior, 2020, vol. 120, issue C, 289-310

Abstract: The famous conflict between dynamic consistency and ambiguity purportedly undermines these models' normative credibility, and challenges their use in economic applications. Dynamic consistency concerns preferences over contingent plans: so what counts are the contingencies the decision maker envisages – and plans for – rather than independently fixed contingencies, as implicitly assumed in standard formalisations. An appropriate formulation of dynamic consistency resolves the aforementioned conflict, hence undermining the criticisms of ambiguity models based on it. Moreover, it provides a principled justification for the restriction to certain families of beliefs in applications of these models in dynamic choice problems. Finally, it supports a new analysis of the value of information under ambiguity, showing that decision makers may only turn down information if it has an opportunity cost, in terms of the compromising of information they had otherwise expected to receive.

Keywords: Decision under uncertainty; Dynamic consistency; Dynamic choice; Envisaged contingency; Ambiguity; Value of information (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899825620300014
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:120:y:2020:i:c:p:289-310

DOI: 10.1016/j.geb.2019.12.012

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2021-06-30
Handle: RePEc:eee:gamebe:v:120:y:2020:i:c:p:289-310