Preference for Flexibility and Dynamic Consistency |
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Authors: | Gil Riella |
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Institution: | Department of Economics, Universidade de Brasília, Brazil |
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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. |
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Keywords: | D11 D81 |
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