Sequential decision making without independence: a new conceptual approach
AbstractThis paper is a critical reflection on the notion of dynamic consistency that is commonly used in the literature in Economics and Decision Theory and on the difficulty to test it in an experimental set up. Building on the possible characteristics of individual dynamic preferences, we propose a conceptual categorisation of possible sequential decision making behaviors. In particular, we show that not conforming to Expected Utility Theory does not necessarily implies a violation of dynamic consistency and propose a simple set of decision tasks that allows to reveal different strategic types of resolution of a sequential decision problem by a non-expected utility maximizers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by LAMETA, Universtiy of Montpellier in its series Working Papers with number 12-27.
Length: 30 pages
Date of creation: Sep 2012
Date of revision: Sep 2012
Contact details of provider:
Postal: Avenue Raymond Dugrand, CS 79606, 34960 Montpellier Cedex 2
Web page: http://www.lameta.univ-montp1.fr/
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-22 (All new papers)
- NEP-CBE-2012-09-22 (Cognitive & Behavioural Economics)
- NEP-EVO-2012-09-22 (Evolutionary Economics)
- NEP-GTH-2012-09-22 (Game Theory)
- NEP-HPE-2012-09-22 (History & Philosophy of Economics)
- NEP-MIC-2012-09-22 (Microeconomics)
- NEP-UPT-2012-09-22 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Volij, Oscar, 1994. "Dynamic consistency, consequentialism and reduction of compound lotteries," Economics Letters, Elsevier, vol. 46(2), pages 121-129, October.
- Hammond, P.J. & , ., 1987. "Consequentialist foundations for expected utility," CORE Discussion Papers 1987016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Schmeidler, D. & Karni, E., 1990.
"A Temporal Dynamic Consistency And Expected Utility Theory,"
39-90, Tel Aviv.
- Karni, Edi & Schmeidler, David, 1991. "Atemporal dynamic consistency and expected utility theory," Journal of Economic Theory, Elsevier, vol. 54(2), pages 401-408, August.
- Karni, Edi & Safra, Zvi, 1990.
"Behaviorally consistent optimal stopping rules,"
Journal of Economic Theory,
Elsevier, vol. 51(2), pages 391-402, August.
- John Hey & Gianna Lotito, 2009.
"Naive, resolute or sophisticated? A study of dynamic decision making,"
Journal of Risk and Uncertainty,
Springer, vol. 38(1), pages 1-25, February.
- John D Hey & Gianna Lotito, 2007. "Naïve, Resolute or Sophisticated? A Study of Dynamic Decision Making," Discussion Papers 07/03, Department of Economics, University of York.
- Kahneman, Daniel & Tversky, Amos, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Econometric Society, vol. 47(2), pages 263-91, March.
- Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
- Sarin, Rakesh & Wakker, Peter P, 1998. "Dynamic Choice and NonExpected Utility," Journal of Risk and Uncertainty, Springer, vol. 17(2), pages 87-119, November.
- Bénabou, Roland & Tirole, Jean, 2002.
"Willpower and Personal Rules,"
CEPR Discussion Papers
3143, C.E.P.R. Discussion Papers.
- David M Kreps & Evan L Porteus, 1978.
"Temporal Resolution of Uncertainty and Dynamic Choice Theory,"
Levine's Working Paper Archive
625018000000000009, David K. Levine.
- 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.
- Irving H. LaValle & Kenneth R. Wapman, 1986. "Note---Rolling Back Decision Trees Requires the Independence Axiom!," Management Science, INFORMS, vol. 32(3), pages 382-385, March.
- Hammond, Peter J, 1989. "Consistent Plans, Consequentialism, and Expected Utility," Econometrica, Econometric Society, vol. 57(6), pages 1445-49, November.
- Gordon B. Hazen, 1987. "Note---Does Rolling Back Decision Trees Really Require the Independence Axiom?," Management Science, INFORMS, vol. 33(6), pages 807-809, June.
- Laibson, David I., 1997.
"Golden Eggs and Hyperbolic Discounting,"
4481499, Harvard University Department of Economics.
- Volij, Oscar, 1994. "Dynamic Consistency, Consequentialism and The Reduction of Compound Lotteries," Staff General Research Papers 10569, Iowa State University, Department of Economics.
- Nielsen, Thomas D. & Jaffray, Jean-Yves, 2006. "Dynamic decision making without expected utility: An operational approach," European Journal of Operational Research, Elsevier, vol. 169(1), pages 226-246, February.
- Antoine Nebout & Dimitri Dubois, 2009. "When Allais meets Ulysses: Dynamic Consistency and the Certainty Effect," Working Papers 09-30, LAMETA, Universtiy of Montpellier, revised Sep 2012.
- Karni, Edi & Safra, Zvi, 1989. "Dynamic Consistency, Revelations in Auctions and the Structure of Preferences," Review of Economic Studies, Wiley Blackwell, vol. 56(3), pages 421-33, July.
- Rakesh Sarin & Peter Wakker, 1994. "Folding Back in Decision Tree Analysis," Management Science, INFORMS, vol. 40(5), pages 625-628, May.
- Cubitt, Robin P & Starmer, Chris & Sugden, Robert, 1998. "Dynamic Choice and the Common Ratio Effect: An Experimental Investigation," Economic Journal, Royal Economic Society, vol. 108(450), pages 1362-80, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Patricia Modat).
If references are entirely missing, you can add them using this form.