COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Post Office Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 835

"Knightian Decision Theory, Part II: Intertemporal Problems"

Truman F. Bewley

May 1987

The theory of choice proposed in "Knightian Decision Theory, Part I" is here applied to intertemporal problems. An analogue of dynamic programming called maxmin programming is developed. Also, it is shown that detailed contingent planning may not be needed in order to achieve maximality, a program being maximal if no other program is preferred to it. In certain circumstances, a maximal program can be achieved by making a finite calculation in each period. This calculation ignores distant future states and could also ignore unlikely contingencies. A decision maker making such calculations would behave much like a satisficer.

JEL Classification: 022, 511, 213

Keywords: Satisficing, decision theory, dynamic programming, maxmin programming