Dynamically consistent objective and subjective rationality

DOI10.1007/S00199-022-01437-1zbMATH Open1500.91048arXiv2004.12347OpenAlexW3017391749MaRDI QIDQ2088613FDOQ2088613

Yanyan Li

Publication date: 6 October 2022

Published in: Economic Theory (Search for Journal in Brave)

Abstract: A group of experts, for instance climate scientists, is to choose among two policies $f$ and $g$. Consider the following decision rule. If all experts agree that the expected utility of $f$ is higher than the expected utility of $g$, the unanimity rule applies, and $f$ is chosen. Otherwise the precautionary principle is implemented and the policy yielding the highest minimal expected utility is chosen. This decision rule may lead to time inconsistencies when an intermediate period of partial resolution of uncertainty is added. We provide axioms that enlarge the initial group of experts with veto power, which leads to a set of probabilistic beliefs that is "rectangular" in a minimal sense. This makes this decision rule dynamically consistent and provides, as a byproduct, a novel behavioral characterization of rectangularity.

Full work available at URL: https://arxiv.org/abs/2004.12347

zbMATH Keywords

ambiguity aversiondynamic consistencyrectangularityfull Bayesian updatingobjective rationalitysubjective rationality

Mathematics Subject Classification ID

Decision theory (91B06)

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