Preference for Flexibility and Dynamic Consistency

Gil Riella

Journal of Economic Theory, 2013, vol. 148, issue 6, 2467-2482

Abstract: Dekel, Lipman, and Rustichini [3] 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
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:6:p:2467-2482

DOI: 10.1016/j.jet.2013.09.001

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