The Department of Economics Theory, History, and Development Seminar Series presents

"Dynamic Consistency and Expected Utility with State Ambiguity"
with Antoine Billot, Professor of Economics, University of Paris 2

Monday, April 29, 2013
3:30-5:00 p.m.
Social Science Plaza B, Room 3218

While models of ambiguity are reputed to generate a basic tension between dynamic consistency and the Ellsberg choices, this paper identifies a third implicit ingredient of this tension, namely the parsimony rule, which enforces each state of nature to encode a well-defined unique observation. This paper then develops nonparsimonious interpretations of the state space to make the Ellsberg choices compatible with both expected utility and dynamic consistency. The state space may contain nonobservable states: a state is allowed to encode more than one observation, a pattern called state ambiguity. The presence of such ambiguous states motivates an explicit distinction between the decision-maker and the theory-maker, the latter designing the state space and eliciting the former's preferences.

For further information, please contact Gloria Simpson, simpsong@uci.edu or 949-824-5788.