Dynamically consistent choice and the revelationof Strotz-Pollak equilibrium

Stephen A. Clark

Annals of Operations Research, 1998, vol. 80, issue 0, 67-84

Abstract: The purpose of this essay is to provide a revealed preference analysis of the concept of“dynamically consistent” choice in a decision tree without chance nodes. It is shown thatmyopic rationality with respect to a stationary weak order is characterized by Arrow's versionof the Weak Axiom of Revealed Preference, and that perfect rationality is characterized byChernoff's condition Alpha. Since the latter concept of dynamic rationality is based uponthe selection of a Strotz-Pollak equilibrium as a game-theoretic solution, it is concludedthat condition Alpha alone provides a proper choice-theoretic definition of “dynamic consistency”. Copyright Kluwer Academic Publishers 1998

Date: 1998
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DOI: 10.1023/A:1018984419092

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