Journal
JOURNAL OF ECONOMIC THEORY
Volume 113, Issue 1, Pages 1-31Publisher
ACADEMIC PRESS INC ELSEVIER SCIENCE
DOI: 10.1016/S0022-0531(03)00097-8
Keywords
ambiguity; multiple-priors; dynamic consistency; Ellsberg paradox; robust control; updating beliefs; recursive utility
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This paper axiomatizes an intertemporal version of multiple-priors utility. A central axiom is dynamic consistency, which leads to a recursive structure for utility, to 'rectangular' sets of priors and to prior-by-prior Bayesian updating as the updating rule for such sets of priors. It is argued that dynamic consistency is intuitive in a wide range of situations and that the model is consistent with a rich set of possibilities for dynamic behavior under ambiguity. (C) 2003 Elsevier Science (USA). All rights reserved.
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