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Preference for Flexibility and Dynamic Consistency

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  • Riella, Gil

Abstract

Dekel, Lipman, and Rustichini [3] characterize preferences over menus of lotteries that can be represented by the use of a unique subjective state space and a prior. We investigate what would be the appropriate version of Dynamic Consistency in such a setup. The condition we find, which we call Flexibility Consistency, is linked to a comparative theory of preference for flexibility. When the subjective state space is finite, we show that Flexibility Consistency is equivalent to a subjective version of Dynamic Consistency and that it implies that the decision maker is a subjective state space Bayesian updater. Later we characterize when a collection of signals can be interpreted as a partition of the subjective state space of the decision maker.

Suggested Citation

  • Riella, Gil, 2013. "Preference for Flexibility and Dynamic Consistency," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2467-2482.
  • Handle: RePEc:eee:jetheo:v:148:y:2013:i:6:p:2467-2482
    DOI: 10.1016/j.jet.2013.09.001
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    Cited by:

    1. Cooke, Kevin, 2017. "Preference discovery and experimentation," Theoretical Economics, Econometric Society, vol. 12(3), September.
    2. David Dillenberger & Philipp Sadowski, 2012. "Generalized Partition and Subjective Filtration," Levine's Working Paper Archive 786969000000000591, David K. Levine.
    3. David Dillenberger & Philipp Sadowski, 2012. "Generalized Partition and Subjective Filtration," PIER Working Paper Archive 12-036, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    4. David Dillenberger & Philipp Sadowski, 2011. "Subjective Learning, Second Version," PIER Working Paper Archive 12-007, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 07 Mar 2012.
    5. repec:eee:gamebe:v:106:y:2017:i:c:p:134-152 is not listed on IDEAS

    More about this item

    Keywords

    Preference for flexibility; Dynamic consistency; Bayesian updating; Subjective state space;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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