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Updating preferences with multiple priors

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Author Info
Klibanoff, Peter () (Northwestern University)
Hanany, Eran () (Tel Aviv University)
Abstract

We propose and axiomatically characterize dynamically consistent update rules for decision making under ambiguity. These rules apply to the preferences with multiple priors of Gilboa and Schmeidler (1989), and are the first, for any model of preferences over acts, to be able to reconcile typical behavior in the face of ambiguity (as exemplified by Ellsberg’s paradox) with dynamic consistency for all non-null events. Updating takes the form of applying Bayes’ rule to subsets of the set of priors, where the specific subset depends on the preferences, the conditioning event, and the choice problem (i.e., a feasible set of acts together with an act chosen from that set).

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File URL: http://econtheory.org/ojs/index.php/te/article/view/20070261/61
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Publisher Info
Article provided by Society for Economic Theory in its journal Theoretical Economics.

Volume (Year): 2 (2007)
Issue (Month): 3 (September)
Pages: 261-298
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Handle: RePEc:the:publsh:215

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Web page: http://econtheory.org

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Related research
Keywords: Updating; dynamic consistency; ambiguity; Ellsberg; Bayesian; consequentialism;

Other versions of this item:

Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

Cited by:
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  1. André Lapied & Pascal Toquebeuf, 2009. "Consistent dynamic choice and non-expected utility preferences," Working Papers hal-00416214_v1, HAL. [Downloadable!]
    Other versions:
  2. Sujoy Mukerji, 2009. "Foundations of ambiguity and economic modeling," Economics Series Working Papers 433, University of Oxford, Department of Economics. [Downloadable!]
  3. Takashi Hayashi, 2008. "Context dependence and consistency in dynamic choice under uncertainty: the case of anticipated regret," KIER Working Papers 659, Kyoto University, Institute of Economic Research. [Downloadable!]
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