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Sequential decision making without independence: a new conceptual approach

  • Antoine Nebout

This 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.

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File URL: http://www.lameta.univ-montp1.fr/Documents/DR2012-27.pdf
File Function: First version, 2012
Download Restriction: no

Paper provided by LAMETA, Universtiy of Montpellier in its series Working Papers with number 12-27.

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Length: 30 pages
Date of creation: Sep 2012
Date of revision: Sep 2012
Handle: RePEc:lam:wpaper:12-27
Contact details of provider: Postal: Avenue Raymond Dugrand, CS 79606, 34960 Montpellier Cedex 2
Phone: +33-467-158-568
Fax: +33-467-158-467
Web page: http://www.lameta.univ-montp1.fr/

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  1. David M Kreps & Evan L Porteus, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Levine's Working Paper Archive 625018000000000009, David K. Levine.
  2. Machina, Mark J, 1989. "Dynamic Consistency and Non-expected Utility Models of Choice under Uncertainty," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1622-68, December.
  3. Ted O'Donoghue and Matthew Rabin ., 1997. "Doing It Now or Later," Economics Working Papers 97-253, University of California at Berkeley.
  4. Hammond, Peter J, 1989. "Consistent Plans, Consequentialism, and Expected Utility," Econometrica, Econometric Society, vol. 57(6), pages 1445-49, November.
  5. Volij, Oscar, 1994. "Dynamic Consistency, Consequentialism and The Reduction of Compound Lotteries," Staff General Research Papers 10569, Iowa State University, Department of Economics.
  6. Sarin, Rakesh & Wakker, Peter P, 1998. "Dynamic Choice and NonExpected Utility," Journal of Risk and Uncertainty, Springer, vol. 17(2), pages 87-119, November.
  7. Karni, E. & Safra, Z., 1988. "Behaviorally Consistent Optimal Stopping Rules," Papers 9-88, Tel Aviv.
  8. Bénabou, Roland & Tirole, Jean, 2002. "Willpower and Personal Rules," CEPR Discussion Papers 3143, C.E.P.R. Discussion Papers.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
  14. Schmeidler, D. & Karni, E., 1990. "A Temporal Dynamic Consistency And Expected Utility Theory," Papers 39-90, Tel Aviv.
  15. Rakesh Sarin & Peter Wakker, 1994. "Folding Back in Decision Tree Analysis," Management Science, INFORMS, vol. 40(5), pages 625-628, May.
  16. Volij, Oscar, 1994. "Dynamic consistency, consequentialism and reduction of compound lotteries," Economics Letters, Elsevier, vol. 46(2), pages 121-129, October.
  17. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  18. 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.
  19. Hammond, P.J. & , ., 1987. "Consequentialist foundations for expected utility," CORE Discussion Papers 1987016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  20. Siniscalchi, Marciano, 2011. "Dynamic choice under ambiguity," Theoretical Economics, Econometric Society, vol. 6(3), September.
  21. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  22. Seidenfeld, Teddy, 1988. "Decision Theory Without “Independence” or Without “Ordering”," Economics and Philosophy, Cambridge University Press, vol. 4(02), pages 267-290, October.
  23. 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.
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