Dynamic consistency and reference points

Uzi Segal*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


This note provides a positive answer to the following question. Is it possible to define a set of preference relations, one for each node of a decision tree, such that these preferences satisfy the reduction of compound lotteries axiom and dynamic consistency, and yet do not converge to expected utility? It is argued that updated preferences necessarily have one affine indifference curve but that other indifference curves are unrestricted. A connection is drawn to modelling "reference points." Journal of Economic Literature Classification number: D81.

Original languageEnglish
Pages (from-to)208-219
Number of pages12
JournalJournal of Economic Theory
Issue number1
StatePublished - Jan 1997
Externally publishedYes


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