Context dependence and consistency in dynamic choice under uncertainty: the case of anticipated regret

Takashi Hayashi
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Takashi Hayashi: Department of Economics, University of Texas at Austin

No 659, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We examine if and to what extent choice dispositions can allow dependence on contexts and maintain consistency over time, in a dynamic environment under uncertainty. We focus on a 'minimal' case of context dependence, opportunity dependence due to being affected by anticipated regret. There are two sources of potential inconsistency, one is arrival of information and the other is changing opportunities. First, we go over the general method of resolution of potential inconsistency, by taking any kinds of inconsistency as given constraints. Second, we characterize a class of choice dispositions that are consistent to information arrival but may be inconsistent to changing opportunities. Finally, we consider the full requirement of dynamic consistency and show that it necessarily implies independence of choice opportunities.

Pages: 37pages
Date: 2008-08
New Economics Papers: this item is included in nep-cbe
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