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Handbook of the Economics of Risk and Uncertainty
book

Handbook of the Economics of Risk and Uncertainty

by Mark Machina, W. Kip Viscusi
November 2013
Beginner content levelBeginner
896 pages
35h 10m
English
North Holland
Content preview from Handbook of the Economics of Risk and Uncertainty
Peter J. Hammond and Horst Zank
68
We now prove by backward induction that (2.31) holds at every node n of T. At any
terminal node n with a consequence y Y one has
so (2.31) holds trivially.
As the induction hypothesis, suppose that
�(T , n
) = C
(F(T , n
))
for every
n
N
+1
(T , n
)
. Now, rule (2.30) states that
�(
T , n) =∪
n
β(T ,n)
�(T , n
)
. Together
with (2.33) and the induction hypothesis, this implies that
This proves the relevant backward induction step, so (2.31) holds for all nodes n in tree T.
2.4.7 Time Inconsistency and Hyperbolic Discounting
2.4.7.1 Timed Consequences and Discounting
Following Samuelson (1937), Koopmans (1960)
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Publisher Resources

ISBN: 9780444536853