Abstract
This paper considers two fundamental aspects of the analysis of dynamic choices under risk: the issue of the dynamic consistency of the strategies of a non EU maximizer, and the issue that an individual whose preferences are nonlinear in probabilities may choose a strategy which is in some appropriate sense dominated by other strategies. A proposed way of dealing with these problems, due to Karni and Safra and called ‘behavioral consistency’, is described. The implications of this notion of ‘behavioral consistency’ are explored, and it is shown that while the Karni and Safra approach obtains dynamically consistent behavior under nonlinear preferences, it may imply the choice of ‘dominated’ strategies even in very simple decision trees.
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Dardanoni, V. Implications of behavioral consistency in dynamic choice under uncertainty. Theor Decis 29, 223–234 (1990). https://doi.org/10.1007/BF00126803
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DOI: https://doi.org/10.1007/BF00126803