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Symmetry or Dynamic Consistency?

Author

Listed:
  • Epstein Larry G

    (Boston University, lepstein@bu.edu)

  • Seo Kyoungwon

    (Northwestern University, k-seo@kellogg.northwestern.edu)

Abstract
In a setting with repeated experiments, where evidence about the experiments is symmetric, a decision-maker ranks bets (or acts) over their outcomes. We describe a stark modeling trade-off between symmetry of preference (indifference to permutations), dynamic consistency and ambiguity. Then, assuming that experiments are ordered in time, we outline an axiomatic model of preference that exhibits dynamic consistency and yet models learning under ambiguity.

Suggested Citation

  • Epstein Larry G & Seo Kyoungwon, 2011. "Symmetry or Dynamic Consistency?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-14, June.
    • Handle: RePEc:bpj:bejtec:v:11:y:2011:i:1:n:11
    DOI: 10.2202/1935-1704.1770
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    References listed on IDEAS

    as
    1. Lars Peter Hansen & Thomas J Sargent, 2014. "Beliefs, Doubts and Learning: Valuing Macroeconomic Risk," World Scientific Book Chapters, in: UNCERTAINTY WITHIN ECONOMIC MODELS, chapter 10, pages 331-377, World Scientific Publishing Co. Pte. Ltd..
    2. Klibanoff, Peter & Marinacci, Massimo & Mukerji, Sujoy, 2009. "Recursive smooth ambiguity preferences," Journal of Economic Theory, Elsevier, vol. 144(3), pages 930-976, May.
    3. Nengjiu Ju & Jianjun Miao, 2012. "Ambiguity, Learning, and Asset Returns," Econometrica, Econometric Society, vol. 80(2), pages 559-591, March.
    4. Tomasz Strzalecki, 2013. "Temporal Resolution of Uncertainty and Recursive Models of Ambiguity Aversion," Econometrica, Econometric Society, vol. 81(3), pages 1039-1074, May.
    5. Larry G. Epstein & Martin Schneider, 2010. "Ambiguity and Asset Markets," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 315-346, December.
    6. Epstein, Larry G & Zhang, Jiankang, 2001. "Subjective Probabilities on Subjectively Unambiguous Events," Econometrica, Econometric Society, vol. 69(2), pages 265-306, March.
    7. Larry G. Epstein & Stanley E. Zin, 2013. "Substitution, risk aversion and the temporal behavior of consumption and asset returns: A theoretical framework," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 12, pages 207-239, World Scientific Publishing Co. Pte. Ltd..
    8. W. M. Gorman, 1968. "The Structure of Utility Functions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 35(4), pages 367-390.
    9. Lars Peter Hansen, 2007. "Beliefs, Doubts and Learning: Valuing Economic Risk," NBER Working Papers 12948, National Bureau of Economic Research, Inc.
    10. Larry G. Epstein & Martin Schneider, 2007. "Learning Under Ambiguity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(4), pages 1275-1303.
    11. Hui Chen & Nengjiu Ju & Jianjun Miao, 2014. "Dynamic Asset Allocation with Ambiguous Return Predictability," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 799-823, October.
    12. , G. & ,, 2010. "Symmetry of evidence without evidence of symmetry," Theoretical Economics, Econometric Society, vol. 5(3), September.
    13. Kreps, David M & Porteus, Evan L, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Econometrica, Econometric Society, vol. 46(1), pages 185-200, January.
    14. Larry G. Epstein & Martin Schneider, 2008. "Ambiguity, Information Quality, and Asset Pricing," Journal of Finance, American Finance Association, vol. 63(1), pages 197-228, February.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Klibanoff, Peter & Mukerji, Sujoy & Seo, Kyoungwon & Stanca, Lorenzo, 2022. "Foundations of ambiguity models under symmetry: α-MEU and smooth ambiguity," Journal of Economic Theory, Elsevier, vol. 199(C).
    2. Peter Klibanoff & Sujoy Mukerji & Kyoungwon Seo, 2014. "Perceived Ambiguity and Relevant Measures," Econometrica, Econometric Society, vol. 82, pages 1945-1978, September.
    3. Li, Jian, 2019. "The K-armed bandit problem with multiple priors," Journal of Mathematical Economics, Elsevier, vol. 80(C), pages 22-38.
    4. Epstein, Larry G. & Seo, Kyoungwon, 2014. "De Finetti meets Ellsberg," Research in Economics, Elsevier, vol. 68(1), pages 11-26.
    5. repec:bos:wpaper:wp2013-001 is not listed on IDEAS
    6. Ellis, Andrew, 2018. "On dynamic consistency in ambiguous games," Games and Economic Behavior, Elsevier, vol. 111(C), pages 241-249.
    7. Bade, Sophie, 2022. "Dynamic semi-consistency," Games and Economic Behavior, Elsevier, vol. 134(C), pages 117-126.

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