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Testing Dynamic Consistency and Consequentialism under Ambiguity

Author

Listed:
  • Han Bleichrodt

    (Erasmus Research Institute of Management)

  • Jurgen Eichberger

    (University of Heidelberg)

  • Simon Grant

    (Australian National University)

  • David Kelsey

    (University of Nottingham)

  • Chen Li

    (Erasmus University, Rotterdam)

Abstract

Accounting for ambiguity aversion in dynamic decisions generally implies that either dynamic consistency or consequentialism must be given up. To gain insight into which of these principles better describes people’s preferences we tested them using a variation of Ellsberg’s three-color urn experiment. Subjects were asked to make a choice both before and after they received a signal. We found that most ambiguity neutral subjects satisfied both dynamic consistency and consequentialism and behaved consistent with subjective expected utility with Bayesian updating. The majority of ambiguity averse subjects violated at least one of the principles and they were more likely to satisfy consequentialism than dynamic consistency.

Suggested Citation

  • Han Bleichrodt & Jurgen Eichberger & Simon Grant & David Kelsey & Chen Li, 2020. "Testing Dynamic Consistency and Consequentialism under Ambiguity," Discussion Papers 2020-17, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Handle: RePEc:not:notcdx:2020-17
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    References listed on IDEAS

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    Cited by:

    1. Kathleen Ngangoué, M., 2021. "Learning under ambiguity: An experiment in gradual information processing," Journal of Economic Theory, Elsevier, vol. 195(C).
    2. Shishkin, Denis & Ortoleva, Pietro, 2023. "Ambiguous information and dilation: An experiment," Journal of Economic Theory, Elsevier, vol. 208(C).

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    More about this item

    Keywords

    ambiguity; three-color Ellsberg paradox; consequentialism; dynamic consistency;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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