Rationalizing Dynamic Choices

41 Pages Posted: 27 Feb 2019 Last revised: 7 Sep 2023

See all articles by Henrique de Oliveira

Henrique de Oliveira

Penn State University

Rohit Lamba

Pennsylvania State University - College of the Liberal Arts

Date Written: September 05, 2023

Abstract

An analyst observes an agent take a sequence of actions. The analyst does not have access to the agent’s information and ponders whether the observed actions could be justified through a rational, Bayesian model. We show that the observed actions cannot be justified if and only if there is a single deviation argument that leaves the agent better off, regardless of the information. The result is then extended to allow for distributions over possible action sequences, thereby characterizing the full empirical content of the Bayesian model. Four applications are presented: monotonicity of rationalization with risk aversion, a test of the Bayesian model as applied in behavioral economics, feasible outcomes in dynamic information design, and partial identification of preferences without assumptions on information.

Keywords: dynamic choice, rationalize, sequential information, deviation rule, dominance

JEL Classification: D8, D9

Suggested Citation

de Oliveira, Henrique and Lamba, Rohit, Rationalizing Dynamic Choices (September 05, 2023). Available at SSRN: https://ssrn.com/abstract=3332092 or http://dx.doi.org/10.2139/ssrn.3332092

Henrique De Oliveira

Penn State University ( email )

408 Kern building
University Park, PA 16802
United States

HOME PAGE: http://henriquedeoliveira.com/

Rohit Lamba (Contact Author)

Pennsylvania State University - College of the Liberal Arts ( email )

University Park, PA 16802-3306
United States

HOME PAGE: http://www.rohitlamba.com

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