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Testing Dynamic Consistency and Consequentialism under Ambiguity

Han Bleichrodt, Jurgen Eichberger, Simon Grant (), David Kelsey and Chen Li
Additional contact information
Han Bleichrodt: Erasmus Research Institute of Management
Jurgen Eichberger: University of Heidelberg
Chen Li: Erasmus University, Rotterdam

No 2020-17, Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham

Abstract: Accounting for ambiguity aversion in dynamic decisions generally implies that either dynamic consistency or consequentialism must be given up. To gain insight into which of these principles better describes people’s preferences we tested them using a variation of Ellsberg’s three-color urn experiment. Subjects were asked to make a choice both before and after they received a signal. We found that most ambiguity neutral subjects satisfied both dynamic consistency and consequentialism and behaved consistent with subjective expected utility with Bayesian updating. The majority of ambiguity averse subjects violated at least one of the principles and they were more likely to satisfy consequentialism than dynamic consistency.

Keywords: ambiguity; three-color Ellsberg paradox; consequentialism; dynamic consistency (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-exp and nep-upt
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