Dynamically Consistent Preferences with Quadratic Beliefs
Jürgen Eichberger and
Simon Grant ()
Journal of Risk and Uncertainty, 1997, vol. 14, issue 2, 189-207
This article characterizes a family of preference relations over uncertain prospects that (a) are dynamically consistent in the Machina sense and, moreover, for which the updated preferences are also members of this family and (b) can simultaneously accommodate Ellsberg- and Allais-type paradoxes. Replacing the "mixture independence" axiom by "mixture symmetry", proposed by Chew, Epstein, and Segal (1991) for decision making under objective risk, and requiring that for some partition of the state space the agent perceives ambiguity and so prefers a randomization over outcomes across that partition (proper uncertainty aversion), preferences can be represented by a (proper) quadratic functional. This representation may be further refined to allow a separation between the quantification of beliefs and risk preferences that is closed under dynamically consistent updating. Copyright 1997 by Kluwer Academic Publishers
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
http://journals.kluweronline.com/issn/0895-5646/contents link to full text (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:jrisku:v:14:y:1997:i:2:p:189-207
Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/11166/PS2
Access Statistics for this article
Journal of Risk and Uncertainty is currently edited by W. Kip Viscusi
More articles in Journal of Risk and Uncertainty from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().