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Dynamic Consistency, Subjective Beliefs and Valuable Information

Galanis, S. ORCID: 0000-0003-4286-7449 (2021). Dynamic Consistency, Subjective Beliefs and Valuable Information. Economic Theory,

Abstract

Ambiguity sensitive preferences must fail either Consequentialism or Dynamic Consistency (DC), two properties that are compatible with subjective expected utility and Bayesian updating, while forming the basis of backward induction and dynamic programming. We examine the connection between these properties in a general environment of convex preferences over monetary acts and find that, far from being incompatible, they are connected in an economically meaningful way. In single-agent decision problems, positive value of information characterises one direction of DC. We propose a weakening of DC and show that one direction is equivalent to weakly valuable information, whereas the other characterises the Bayesian updating of the subjective beliefs which are revealed by trading behavior.

Publication Type: Article
Additional Information: This is a post-peer-review, pre-copyedit version of an article to be published in Economic Theory. The final authenticated version will be available online at: http://link.springer.com/journal/199
Publisher Keywords: Updating, Ambiguity, Dynamic Consistency, Bayesian, Consequentialism, Value of Information
Subjects: H Social Sciences > HB Economic Theory
Departments: School of Arts & Social Sciences > Economics
Date Deposited: 24 Feb 2021 15:39
URI: https://openaccess.city.ac.uk/id/eprint/25717
[img] Text - Accepted Version
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