Time Consistency in Decision Making

The speaker will discuss the time consistency related to dynamic decision making subject to various uncertainties that evolve in time. Typically, decisions are made subject to the decision maker's preferences, which may change in time and thus they need to be progressively assessed as an integral part of the decision making process. Naturally, the assessment of preferences should be done in such a way that the future preferences are assessed consistently with the present ones. Traditionally, in finance and economics, the preferences are aimed at ordering cash and/or consumption streams. A convenient way to study preferences is to study them via numerical representations, such as (dynamic) risk measures, and (dynamic) performance measures. The speaker proposes a new flexible framework allowing for a unified study of time consistency of these measures, but also suited for a large class of maps. The time consistency is defined in terms of an update rule, a notion that would be discussed into details and illustrated through various examples. Additionally, The speaker will give a fair overview of some known and popular existing forms of time consistency and the connections between them. This is a joint work with Tomasz R. Bielecki and Marcin Pitera.