induction or recursion, one obtains a solution that is also optimal ex ante. It turns out that
Savage’s Postulate P2 also ensures that conditional preferences as defined above satisfy
dynamic consistency. (Indeed, the connection between P2 and dynamic consistency is
tight: see Epstein and Le Breton (1993), Ghirardato (2002) and Siniscalchi (2011, Sect.
4.2).)
Since ambiguity-sensitive preferences violate Postulate P2, it should come as no
surprise that updating and consistent dynamic choice pose challenges. As we shall see,
there is no unique way to define conditional preferences or—in any given parametric ...
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