Randomization and dynamic consistency

Eichberger, Jurgen., Grant, Simon. and Kelsey, David. (2015) Randomization and dynamic consistency. Economic Theory, 62 3: 547-566. doi:10.1007/s00199-015-0913-8

Author Eichberger, Jurgen.
Grant, Simon.
Kelsey, David.
Title Randomization and dynamic consistency
Journal name Economic Theory   Check publisher's open access policy
ISSN 1432-0479
Publication date 2015-09-09
Year available 2015
Sub-type Article (original research)
DOI 10.1007/s00199-015-0913-8
Open Access Status Not Open Access
Volume 62
Issue 3
Start page 547
End page 566
Total pages 20
Place of publication Heidelberg, Germany
Publisher Springer
Collection year 2016
Language eng
Abstract Raiffa (Q J Econ 75:690–694, 1961) has suggested that ambiguity aversion will cause a strict preference for randomization. We show that dynamic consistency implies that individuals will be indifferent to ex ante randomizations. On the other hand, it is possible for a dynamically consistent ambiguity averse preference relation to exhibit a strict preference for some ex post randomizations. We argue that our analysis throws some light on the recent debate on the status of the smooth model of ambiguity This debate rests on whether the randomizations implicit in the set-up are viewed as being resolved before or after the (ambiguous) uncertainty.
Keyword Ambiguity
Ex ante and ex post randomization
Dynamic consistency
Smooth ambiguity
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2016 Collection
School of Economics Publications
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