Dynamic choice under ambiguity

This paper analyzes dynamic choice for decision makers whose preferences violate Savage's sure‐thing principle (Savage 1954) and, therefore, give rise to violations of dynamic consistency. The consistent‐planning approach introduced by (1955–1956) provides one way to deal with dynamic inconsistencies; however, consistent planning is typically interpreted as a solution concept for a game played by “multiple selves” of the same individual. The main result of this paper shows that consistent planning under uncertainty is fully characterized by suitable behavioral assumptions on the individual's preferences over decision trees. In particular, knowledge of ex ante preferences over trees is sufficient to characterize the behavior of a consistent planner. The results thus enable a fully decision‐theoretic analysis of dynamic choice with dynamically inconsistent preferences. The analysis accommodates arbitrary decision models and updating rules; in particular, no restriction needs to be imposed on risk attitudes and sensitivity to ambiguity.