Preference for Flexibility and Dynamic Consistency

Dekel, Lipman, and Rustichini (2001) characterize preferences over menus of lotteries that can be represented by the use of a unique subjective state space and a prior. We investigate what would be the appropriate version of Dynamic Consistency in such a setup. The condition we Önd, which we call Flexibility Consistency, is linked to a comparative theory of preference for áexibility. When the subjective state space is Önite, we show that Flexibility Consistency is equivalent to a subjective version of Dynamic Consistency and that it implies that the decision maker is a subjective state space bayesian updater. Later we characterize when a collection of signals can be interpreted as a partition of the subjective state space of the decision maker. JEL ClassiÖcation: D11, D81.