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Preference for Flexibility and Dynamic Consistency

  • Riella, Gil

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.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 148 (2013)
Issue (Month): 6 ()
Pages: 2467-2482

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:6:p:2467-2482
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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