Dynamic Choice and Consistent Planning

27 Pages Posted: 8 Mar 2018 Last revised: 3 Apr 2018

See all articles by Maximilian Mihm

Maximilian Mihm

New York University (NYU) - Abu Dhabi

Kemal Ozbek

University of St Andrews, School of Economics & Finance

Date Written: March 27, 2018

Abstract

A consistent planner evaluates a dynamic decision problem by considering the changes she expects in her future tastes (or rankings), and how these changes will affect her decision making over time. Using preferences today over decision problems tomorrow, we provide an elicitation method that uniquely identifies a consistent planner's expected future rankings. The elicitation method reflects the idea that future rankings should be monotone with respect to a strict partial order defined in a general choice framework, and we argue that this condition naturally arises in many applications. Moreover, we discuss that a test for the agent's sophistication and naivety can be given by comparing elicited rankings with tomorrow's actual rankings. We also identify the conditions that reveal the agent's optimism and pessimism on how indifferences will be resolved in the future. In particular, we show that a Strotzian consistent planner is the most optimistic, and a cautiously consistent planner is the most pessimistic one.

Keywords: changing tastes, consistent planning, dynamic consistency, sophistication and naivety

JEL Classification: D15, D84

Suggested Citation

Mihm, Maximilian and Ozbek, Kemal, Dynamic Choice and Consistent Planning (March 27, 2018). Available at SSRN: https://ssrn.com/abstract=3131264 or http://dx.doi.org/10.2139/ssrn.3131264

Maximilian Mihm

New York University (NYU) - Abu Dhabi ( email )

Abu Dhabi
United Arab Emirates

Kemal Ozbek (Contact Author)

University of St Andrews, School of Economics & Finance ( email )

Castlecliffe, The Scores
St Andrews, Fife KY16 9AR
United Kingdom

HOME PAGE: http://https://sites.google.com/a/cornell.edu/kemal-ozbek/home

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