Rationalizing Dynamic Choices
This paper studies how an observer determines whether a sequence of observable actions can be rationalized by a Bayesian agent with endogenous information acquisition and updating, under a known utility function. Method: The authors derive the first necessary and sufficient condition for dynamic rationalizability: behavior is irrationalizable if and only if a universally dominant deviation exists—a deviation that strictly improves expected utility across all possible information structures. This condition is information-structure-free, greatly enhancing testability. Contribution/Results: The framework extends to stochastic choice, enabling monotonic rationalization under risk aversion, empirical falsification of Bayesian models, feasibility characterization in dynamic information design, and partial identification of utility parameters. Its core innovation is a verifiable dominance-based rationalizability criterion, which reveals that stronger risk aversion weakens predictive power of behavior and permits preference identification without assuming any specific information structure.