Dynamic objective and subjective rationality

Faro, José Heleno; Lefort, Jean-Philippe

doi:10.3982/te2122

Cited by 13 publications

(11 citation statements)

References 31 publications

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“…Finally, the fact that (% ⇤ , % ⇤ E ) satisfies objective dynamic consistency if and only if (u, P E ) is a Bewley representation of % ⇤ E follows from the same arguments as Theorem 1 in Ghirardato, Maccheroni, and Marinacci (2008) (see also Theorem 1 in Faro and Lefort, 2019).…”

Section: Andmentioning

confidence: 87%

“…Thus, intertemporal security-potential dominance (along with the usual assumption that subjective preferences are invariant biseparable) characterizes when the conditional subjective preferences (% Ê ) E2E P admit ↵-MEU representations with the same utility index u as the ex-ante preferences and with sets of beliefs P E that are prior-by-prior Bayesian updates of the ex-ante set P . At the same time, as in Ghirardato, Maccheroni, and Marinacci (2008) and Faro and Lefort (2019), objective dynamic consistency characterizes when the conditional objective preferences (% ⇤ E ) E2E P admit Bewley representations (u, P E ). Note that the subjective preferences % ^and % Ê need not satisfy dynamic consistency.…”

Section: Dynamic Extensionmentioning

confidence: 99%

“…Cerreia-Vioglio (2016) allows % ^to be a general uncertainty-averse preference (Cerreia-Vioglio, Maccheroni, Marinacci, and Montrucchio, 2011). Faro and Lefort (2019) characterize prior-by-prior Bayesian updating under the Bewley-maxmin model in GMMS. 3 Grant, Rich, and Stecher (2019) use a condition that is equivalent to security-potential dominance (along with weaker assumptions on % ^) to characterize a representation in which the subjectively rational model-ordinal Hurwicz expected utility-is more general than ↵-MEU; they do not characterize ↵-MEU and do not study belief updating.…”

Section: Related Literaturementioning

confidence: 99%

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Objective rationality foundations for (dynamic) α-MEU

Frick

Iijima

Yaouanq

2022

Journal of Economic Theory

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We show how incorporating Gilboa, Maccheroni, Marinacci, and Schmeidler's (2010) notion of objective rationality into the ↵-MEU model of choice under ambiguity (Hurwicz, 1951) can overcome several challenges faced by the baseline model without objective rationality. The decision-maker (DM) has a subjectively rational preference % ^, which captures the complete ranking over acts the DM expresses when forced to make a choice; in addition, we endow the DM with a (possibly incomplete) objectively rational preference % ⇤ , which captures the rankings the DM deems uncontroversial. Under the objectively founded ↵-MEU model, % ^has an ↵-MEU representation and % ⇤ has a unanimity representation à la Bewley (2002), where both representations feature the same utility index and set of beliefs. While the axiomatic foundations of the baseline ↵-MEU model are still not fully understood, we provide a simple characterization of its objectively founded counterpart. Moreover, in contrast with the baseline model, the model parameters are uniquely identified. Finally, we provide axiomatic foundations for prior-by-prior Bayesian updating of the objectively founded ↵-MEU model, while we show that, for the baseline model, standard updating rules can be ill-defined.

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Section: Andmentioning

confidence: 87%

Section: Dynamic Extensionmentioning

confidence: 99%

Section: Related Literaturementioning

confidence: 99%

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Objective rationality foundations for (dynamic) α-MEU

Frick

Iijima

Yaouanq

2022

Journal of Economic Theory

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“…Su¢ ciency of the axioms for representation (13) and its uniqueness properties follow from Theorem 1 of GMMS, necessity is easy to check. Finally, (14) is proved in Proposition 4 below.…”

Section: A Proofsmentioning

confidence: 88%

Rational preference and rationalizable choice

et al. 2018

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We study a decision maker characterized by two binary relations. The …rst re ‡ects his judgments about well-being, his mental preferences. The second describes the decision maker's choice behavior, his behavioral preferences. We propose axioms that describe a relation between these two preferences, so between mind and behavior, thus disentangling two di¤erent perspectives on preferences: a description of tastes (and attitudes) and a way to organize behavioral data. We obtain two representations: one in which mental preferences uniquely determine choice behavior, another for which mental preferences direct behavior but room remains for biases and framing e¤ects. Our results also provide a foundation for a decision analysis procedure called robust ordinal regression and proposed by Greco, Mousseau, and S÷ owiński (2008).

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“…Bayesian updating of priors is suggested or characterized by Jaffray (1992Jaffray ( , 1994, Fagin and Halpern (1991), Wasserman and Kadane (1990), Walley (1991), Epstein and Schneider (2003), Sarin and Wakker (1998), Pires (2002), Siniscalchi (2001), Wang (2003) and Faro and Lefort (2019). Ghirardato et al (2008) characterize the Bayesian updating of a set of beliefs which are used to represent the unambiguous preference relation (Ghirardato et al 2004), which is incomplete.…”

Section: Related Literaturementioning

confidence: 99%

Dynamic consistency, valuable information and subjective beliefs

Galanis

2021

Econ Theory

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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.

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Dynamic objective and subjective rationality

Cited by 13 publications

References 31 publications

Objective rationality foundations for (dynamic) α-MEU

Objective rationality foundations for (dynamic) α-MEU

Rational preference and rationalizable choice

Dynamic consistency, valuable information and subjective beliefs

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