Inter-temporal preference for flexibility and risky choice

We derive an inter-temporal theory of choice, in the spirit of Kreps and Porteus [Kreps, D.M., Porteus, E.L., 1978. Temporal resolution of uncertainty and dynamic choice theory. Econometrica 46, 185–200], where decision makers have incomplete preferences. This can be used to model indecisiveness as...

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Bibliographic Details
Published in:Journal of mathematical economics 2006-09, Vol.42 (6), p.698-709
Main Authors: Kraus, Alan, Sagi, Jacob S.
Format: Article
Language:English
Subjects:
Contingencies
Decision making
Decision theory
Flexibility
Incomplete preference relations
Inter-temporal choice
Mathematical economics
Non-expected utility
Preferences
Risk
Studies
Time consistency
Uncertainty
Unforeseen contingencies
Utility measurement
Utility representation
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Summary:We derive an inter-temporal theory of choice, in the spirit of Kreps and Porteus [Kreps, D.M., Porteus, E.L., 1978. Temporal resolution of uncertainty and dynamic choice theory. Econometrica 46, 185–200], where decision makers have incomplete preferences. This can be used to model indecisiveness as well as unforeseen contingencies. The key to our approach is a time consistency condition and therefore the normative connection between ex-ante and ex-post choice. The time consistency condition enables a representation that is a straight forward extension of recursive utility with the exception that it features an inter-temporal ‘utility for flexibility’.
ISSN:0304-4068
1873-1538
DOI:10.1016/j.jmateco.2006.04.010