Dynamic consistency and ambiguity: A reappraisal

Brian Hill ()
Additional contact information
Brian Hill: HEC Paris - Recherche - Hors Laboratoire - HEC Paris - Ecole des Hautes Etudes Commerciales, CNRS - Centre National de la Recherche Scientifique, GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

Post-Print from HAL

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: Dynamic Consistency; Value of Information; Ambiguity; Dynamic Choice; Envisaged Contingency; Decision under Uncertainty (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-mic and nep-upt
Note: View the original document on HAL open archive server: https://hal.science/hal-02457455v1
References: Add references at CitEc
Citations: View citations in EconPapers (13)

Published in Games and Economic Behavior, 2020, ⟨10.1016/j.geb.2019.12.012⟩

Downloads: (external link)
https://hal.science/hal-02457455v1/document (application/pdf)

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:hal:journl:hal-02457455

DOI: 10.1016/j.geb.2019.12.012

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().