Andrei Savochkin , Alexander Shklyaev , Alexey Galatenko
{"title":"Dynamic consistency and rectangularity for the smooth ambiguity model","authors":"Andrei Savochkin , Alexander Shklyaev , Alexey Galatenko","doi":"10.1016/j.jet.2025.105991","DOIUrl":null,"url":null,"abstract":"<div><div>We study the Smooth Ambiguity decision criterion in the dynamic setting to understand when it can satisfy the Dynamic Consistency and Consequentialism properties. These properties allow one to rewrite the decision criterion recursively and solve for optimal decisions by Dynamic Programming. Our result characterizes the possibility of having these properties through a condition that resembles <span><span>Epstein and Schneider</span></span>'s (<span><span>2003</span></span>) rectangularity condition for the maxmin model. At the same time, we show that Dynamic Consistency and Consequentialism can be achieved for Smooth Ambiguity preferences in a narrower set of scenarios than one would hope for.</div></div>","PeriodicalId":48393,"journal":{"name":"Journal of Economic Theory","volume":"225 ","pages":"Article 105991"},"PeriodicalIF":1.4000,"publicationDate":"2025-03-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Economic Theory","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0022053125000377","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
We study the Smooth Ambiguity decision criterion in the dynamic setting to understand when it can satisfy the Dynamic Consistency and Consequentialism properties. These properties allow one to rewrite the decision criterion recursively and solve for optimal decisions by Dynamic Programming. Our result characterizes the possibility of having these properties through a condition that resembles Epstein and Schneider's (2003) rectangularity condition for the maxmin model. At the same time, we show that Dynamic Consistency and Consequentialism can be achieved for Smooth Ambiguity preferences in a narrower set of scenarios than one would hope for.
期刊介绍:
The Journal of Economic Theory publishes original research on economic theory and emphasizes the theoretical analysis of economic models, including the study of related mathematical techniques. JET is the leading journal in economic theory. It is also one of nine core journals in all of economics. Among these journals, the Journal of Economic Theory ranks fourth in impact-adjusted citations.