Dynamic Consistency and Imperfect Recall

Abstract

We argue that a notion of constrained time consistency is appropriate to evaluate the interim incentives to deviate from a plan in a decision problem with imperfect recall. Under perfect recall, constrained time consistency is equivalent to the standard notion of time consistency. It turns out that a behavioral strategy β is constrained time consistent if and only if every realization equivalent strategy β′ is a modified multiselves equilibrium and this implies that every optimal strategy is constrained time consistent. Furthermore, every constrained time consistent strategy is equivalent to a modified multiselves sequential equilibrium.Journal of Economic LiteratureClassification Numbers: C72, D81.