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Preference for Flexibility and Dynamic Consistency

Author

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  • Gil Riella

Abstract

Dekel, Lipman, and Rustichini (2001) 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

  • Gil Riella, 2013. "Preference for Flexibility and Dynamic Consistency," Economics and Politics Working Paper Series 6/2013, Economics and Politics Research Group (EPRG), University of Brasília.
    • Handle: RePEc:gvn:eprgwp:62013
    DOI: 10.5281/zenodo.23602652
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    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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