A regular equilibrium solves the extended HJB system

DOI10.1016/J.ORL.2019.07.011MaRDI QIDQ2294352zbMATH OpenOpenAlexWikidataFDO

Authors Kristoffer Lindensjö

Publication date 10 February 2020

Published in Operations Research Letters (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1611.02902

zbMATH Keywords

time-inconsistent preferencestime-inconsistent stochastic controldynamic inconsistencysubgame perfect Nash equilibriumextended HJB system

Mathematics Subject Classification ID

Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Hamilton-Jacobi theories (49L99) Dynamic games (91A25) Optimal stochastic control (93E20)

Abstract: Control problems not admitting the dynamic programming principle are known as time-inconsistent. The game-theoretic approach is to interpret such problems as intrapersonal dynamic games and look for subgame perfect Nash equilibria. A fundamental result of time-inconsistent stochastic control is a verification theorem saying that solving the extended HJB system is a sufficient condition for equilibrium. We show that solving the extended HJB system is a necessary condition for equilibrium, under regularity assumptions. The controlled process is a general It^o diffusion.

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Cited in

(11)

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