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Consistent dynamic choice and non-expected utility preferences

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Author Info
André Lapied () (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579)
Pascal Toquebeuf () (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579)

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Abstract

This paper studies the application of the two most popular non-expected utility (NEU) models -Choquet Expected Utility (CEU) and Maximin Expected Utility (CEU)- to dynamic choice situations in a purely subjective framework. We give an appropriate version of the reduction of compound acts axiom, that states the equivalence between a static and a dynamic choice situation. We show that if consequentialism -only those consequences that can be reached do matter- is additionally assumed, then a monotonic constant linear representation degenerate into expected utility. We envisage two different ways to resolve this problem for the cases where the representation is a CEU or a MEU one. One way consists to weaken the reduction of compound acts axiom, which does not hold on all events. Another way is to relax consequentialism. Then we axiomatically characterize an updating rule for both approaches allowing recursion in several cases.

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Paper provided by HAL in its series Working Papers with number hal-00416214_v1.

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Date of creation: 13 Sep 2009
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Handle: RePEc:hal:wpaper:hal-00416214_v1

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Keywords: Choquet expected utility; Maximin expected utility; Consequentialism; Reduction of compound acts; Dynamic choice; Updating;

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  1. Gilboa Itzhak & Schmeidler David, 1993. "Updating Ambiguous Beliefs," Journal of Economic Theory, Elsevier, vol. 59(1), pages 33-49, February. [Downloadable!] (restricted)
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  2. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April. [Downloadable!] (restricted)
  3. Eichberger, Jurgen & Grant, Simon & Kelsey, David, 2005. "CEU preferences and dynamic consistency," Mathematical Social Sciences, Elsevier, vol. 49(2), pages 143-151, March. [Downloadable!] (restricted)
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  4. Paolo Ghirardato & Fabio Maccheroni & Massimo Marinacci & Marciano Siniscalchi, 2003. "A Subjective Spin on Roulette Wheels," Econometrica, Econometric Society, vol. 71(6), pages 1897-1908, November. [Downloadable!] (restricted)
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  5. Kreps, David M & Porteus, Evan L, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Econometrica, Econometric Society, vol. 46(1), pages 185-200, January. [Downloadable!] (restricted)
  6. Kiyohiko G. Nishimura & Hiroyuki Ozaki, 2003. "A Simple Axiomatization of Iterated Choquet Objectives," CIRJE F-Series CIRJE-F-219, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  7. Wang, Tan, 2003. "Conditional preferences and updating," Journal of Economic Theory, Elsevier, vol. 108(2), pages 286-321, February. [Downloadable!] (restricted)
  8. Dominiak, Adam & Lefort, Jean-Philippe, 2009. "Unambiguous Events and Dynamic Choquet Preferences," Working Papers 0489, University of Heidelberg, Department of Economics. [Downloadable!]
  9. Volij, Oscar, 1994. "Dynamic consistency, consequentialism and reduction of compound lotteries," Economics Letters, Elsevier, vol. 46(2), pages 121-129, October. [Downloadable!] (restricted)
  10. Karni, Edi & Schmeidler, David, 1991. "Atemporal dynamic consistency and expected utility theory," Journal of Economic Theory, Elsevier, vol. 54(2), pages 401-408, August. [Downloadable!] (restricted)
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  11. Wakker, Peter, 1989. "Continuous subjective expected utility with non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 18(1), pages 1-27, February. [Downloadable!] (restricted)
  12. Klibanoff, Peter & Hanany, Eran, 2007. "Updating preferences with multiple priors," Theoretical Economics, Society for Economic Theory, vol. 2(3), pages 261-298, September. [Downloadable!]
  13. Epstein, Larry G. & Schneider, Martin, 2003. "Recursive multiple-priors," Journal of Economic Theory, Elsevier, vol. 113(1), pages 1-31, November. [Downloadable!] (restricted)
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  14. Segal, Uzi, 1990. "Two-Stage Lotteries without the Reduction Axiom," Econometrica, Econometric Society, vol. 58(2), pages 349-77, March. [Downloadable!] (restricted)
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  15. Eichberger, Jurgen & Grant, Simon & Kelsey, David, 2007. "Updating Choquet beliefs," Journal of Mathematical Economics, Elsevier, vol. 43(7-8), pages 888-899, September. [Downloadable!] (restricted)
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