I have greatly benefited from many extensive conversations with Peter Klibanoff and Nabil al-Najjar. I also thank the co-editor, Bart Lipman, and two anonymous referees, as well as Pierpaolo Battigalli, Eddie Dekel, Larry Epstein, Paolo Ghirardato, Alessandro Lizzeri, Fabio Maccheroni, Alessandro Pavan, and Larry Samuelson for their valuable insights, and Simone Galperti for excellent research assistance. All errors are my own.
Dynamic choice under ambiguity
Version of Record online: 9 SEP 2011
Copyright © 2011 Marciano Siniscalchi
Volume 6, Issue 3, pages 379–421, September 2011
How to Cite
Siniscalchi, M. (2011), Dynamic choice under ambiguity. Theoretical Economics, 6: 379–421. doi: 10.3982/TE571
- Issue online: 9 SEP 2011
- Version of Record online: 9 SEP 2011
- Submitted 2009-6-1. Final version accepted 2010-10-28. Available online 2010-10-28.
- consistent planing;
- value of information
This paper analyzes dynamic choice for decision makers whose preferences violate Savage's sure-thing principle (Savage 1954) and, therefore, give rise to violations of dynamic consistency. The consistent-planning approach introduced by (1955–1956) provides one way to deal with dynamic inconsistencies; however, consistent planning is typically interpreted as a solution concept for a game played by “multiple selves” of the same individual.
The main result of this paper shows that consistent planning under uncertainty is fully characterized by suitable behavioral assumptions on the individual's preferences over decision trees. In particular, knowledge of ex ante preferences over trees is sufficient to characterize the behavior of a consistent planner. The results thus enable a fully decision-theoretic analysis of dynamic choice with dynamically inconsistent preferences.
The analysis accommodates arbitrary decision models and updating rules; in particular, no restriction needs to be imposed on risk attitudes and sensitivity to ambiguity.