Consistent Preferences with Fixed Point Updates

Research output: Working paperProfessional

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Abstract

We propose a normative framework for complete preference orderings, in which updating is based on a straightforward fixed point principle. Its scope goes far beyond the Sure Thing Principle, and covers Bayesian updating as a special case, without reference to probabilities. The induced preference reversals are justified on the basis of an interpretation that reconciles consequentialism with adequate forms of choice consistency, and absence of arbitrage. We emphasize the distinction between dynamic choices with or without rights in bygone states, and between choosing if it comes to obtaining versus offering. The framework accommodates the preferences in the Allais and Ellsberg paradoxes, which indicates that the gap between descriptive and normative models is narrower than generally believed.
Original languageEnglish
Pages-
Publication statusIn preparation - 28 Jul 2017

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Fixed point
Dynamic choice
Bayesian updating
Sure-thing principle
Arbitrage
Allais paradox
Consequentialism
Preference reversal
Ellsberg paradox

Keywords

  • METIS-321882
  • IR-104038

Cite this

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Consistent Preferences with Fixed Point Updates. / Roorda, Berend; Joosten, Reinoud A.M.G.

2017. p. -.

Research output: Working paperProfessional

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AB - We propose a normative framework for complete preference orderings, in which updating is based on a straightforward fixed point principle. Its scope goes far beyond the Sure Thing Principle, and covers Bayesian updating as a special case, without reference to probabilities. The induced preference reversals are justified on the basis of an interpretation that reconciles consequentialism with adequate forms of choice consistency, and absence of arbitrage. We emphasize the distinction between dynamic choices with or without rights in bygone states, and between choosing if it comes to obtaining versus offering. The framework accommodates the preferences in the Allais and Ellsberg paradoxes, which indicates that the gap between descriptive and normative models is narrower than generally believed.

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