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Uncertainty Aversion and Dynamic Consistency

Jürgen Eichberger and David Kelsey

International Economic Review, 1996, vol. 37, issue 3, 625-40

Abstract: This paper applies a proposal of M. Machina (1989) for updating nonexpected utility preferences to D. Schmeidler's (1989) nonadditive probability model. The authors discover that the updated preferences may not themselves satisfy Schmeidler's axioms. Despite this, the updates of uncertainty averse preferences are themselves uncertainty averse. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1996
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