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Dynamic consistency and ambiguity: A reappraisal

Author

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  • Brian Hill

    (HEC Paris - Recherche - Hors Laboratoire - HEC Paris - Ecole des Hautes Etudes Commerciales, CNRS - Centre National de la Recherche Scientifique, GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

Abstract

The famous conflict between dynamic consistency and ambiguity purportedly undermines these models' normative credibility, and challenges their use in economic applications. Dynamic consistency concerns preferences over contingent plans: so what counts are the contingencies the decision maker envisages-and plans for-rather than independently fixed contingencies , as implicitly assumed in standard formalisations. An appropriate formulation of dynamic consistency resolves the aforementioned conflict, hence undermining the criticisms of ambiguity models based on it. Moreover, it provides a principled justification for the restriction to certain families of beliefs in applications of these models in dynamic choice problems. Finally, it supports a new analysis of the value of information under ambiguity, showing that decision makers may only turn down information if it has an opportunity cost, in terms of the compromising of information they had otherwise expected to receive.

Suggested Citation

  • Brian Hill, 2020. "Dynamic consistency and ambiguity: A reappraisal," Post-Print hal-02457455, HAL.
    • Handle: RePEc:hal:journl:hal-02457455
    DOI: 10.1016/j.geb.2019.12.012
    Note: View the original document on HAL open archive server: https://hal.science/hal-02457455v1
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    Citations

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    Cited by:

    1. Federica Ceron & Vassili Vergopoulos, 2020. "Recursive objective and subjective multiple priors," Documents de travail du Centre d'Economie de la Sorbonne 20008, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    2. Federica Ceron & Vassili Vergopoulos, 2020. "Recursive objective and subjective multiple priors," Post-Print halshs-02900497, HAL.
    3. Mark Whitmeyer, 2023. "Blackwell-Monotone Updating Rules," Papers 2302.13956, arXiv.org, revised Nov 2024.
    4. Xiaoyu Cheng, 2020. "Ambiguous Persuasion: An Ex-Ante Formulation," Papers 2010.05376, arXiv.org, revised Nov 2023.
    5. Tommi Ekholm & Erin Baker, 2022. "Multiple Beliefs, Dominance and Dynamic Consistency," Management Science, INFORMS, vol. 68(1), pages 529-540, January.
    6. Hill, Brian, 2022. "Updating confidence in beliefs," Journal of Economic Theory, Elsevier, vol. 199(C).
    7. Pahlke, Marieke, 2022. "Dynamic consistency in incomplete information games with multiple priors," Games and Economic Behavior, Elsevier, vol. 133(C), pages 85-108.
    8. Federica Ceron & Vassili Vergopoulos, 2020. "Recursive objective and subjective multiple priors," Working Papers halshs-02563318, HAL.
    9. Federica Ceron & Vassili Vergopoulos, 2020. "Recursive objective and subjective multiple priors," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-02563318, HAL.
    10. Ceron, Federica & Vergopoulos, Vassili, 2022. "Objective rationality and recursive multiple priors," Journal of Mathematical Economics, Elsevier, vol. 102(C).
    11. Bade, Sophie, 2022. "Dynamic semi-consistency," Games and Economic Behavior, Elsevier, vol. 134(C), pages 117-126.
    12. Pahlke, Marieke, 2022. "Dynamic Consistency and Ambiguous Communication," VfS Annual Conference 2022 (Basel): Big Data in Economics 264027, Verein für Socialpolitik / German Economic Association.
    13. Federica Ceron & Vassili Vergopoulos, 2020. "Recursive objective and subjective multiple priors," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-02900497, HAL.

    More about this item

    Keywords

    Dynamic Consistency; Value of Information; Ambiguity; Dynamic Choice; Envisaged Contingency; Decision under Uncertainty;
    All these keywords.

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