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Dynamically Stable Preferences

Author

Listed:
  • Anna Gumena
  • Andrei Savochkin
Abstract
In the framework of dynamic choice under uncertainty, we define dynamic stability as a combination of two assumptions prevalent in the literature: dynamic consistency and the requirement that updated preferences belong to the same class as ex ante ones. Maxmin preferences are shown to be not dynamically stable, and any dynamically stable subset in that class can contain only expected utility preferences. Dynamic stability also turns out to be a defining characteristic of the multiplier preferences of Hansen and Sargent (2001) within the scope of variational preferences. Restrictions imposed by dynamic stability are shown to be related to invariance of preferences.

Suggested Citation

  • Anna Gumena & Andrei Savochkin, 2012. "Dynamically Stable Preferences," Carlo Alberto Notebooks 263, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:263
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

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    2. Longjian Li, 2022. "Ambiguous Cheap Talk," Papers 2209.08494, arXiv.org.
    3. Andrei Savochkin & Alexander Shklyaev & Alexey Galatenko, 2022. "Dynamic Consistency and Rectangularity for the Smooth Ambiguity Model," Working Papers w0288, New Economic School (NES).
    4. Takashi Hayashi, 2016. "Consistent updating of social welfare functions," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 46(3), pages 569-608, March.
    5. Daniele Pennesi, 2013. "Asset Prices in an Ambiguous Economy," Carlo Alberto Notebooks 315, Collegio Carlo Alberto.

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    More about this item

    Keywords

    dynamic consistency; dynamic stability; ambiguity; invariance; consequentialism; Sure Thing Principle; multiplier preferences;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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