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Stopping with anticipated regret

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  • Hayashi, Takashi
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    Abstract

    This paper analyzes a stopping problem where the decision maker is driven by anticipated ex-post regret. There are two sources of potential dynamic inconsistency, one is arrival of information and the other is changing choice opportunities over time--discarding the current stopping option may change how she stops the game in the future. First we consider a naive planner who prescribes a commitment solution, and illustrate the nature of the inconsistency problem. Then we consider a sophisticated planner who plays backward induction against her [`]successive selves'. The resolution of dynamic inconsistency does not in general allow the use of standard dynamic programming technique. We provide, however, a simple characterization of the backward induction strategy, which is given in a recursive formula. We also provide a behavioral implication, that larger indeterminacy of belief may lead to a more aggressive behavior, that is, continuing the gamble longer, which contrasts to the implication of ambiguity aversion.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Mathematical Economics.

    Volume (Year): 45 (2009)
    Issue (Month): 7-8 (July)
    Pages: 479-490

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    Handle: RePEc:eee:mateco:v:45:y:2009:i:7-8:p:479-490

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    Web page: http://www.elsevier.com/locate/jmateco

    Related research

    Keywords: Stopping Minimax regret Dynamic inconsistency Backward induction;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Takashi Hayashi, 2008. "Context dependence and consistency in dynamic choice under uncertainty: the case of anticipated regret," KIER Working Papers 659, Kyoto University, Institute of Economic Research.
    2. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
    3. Klibanoff, Peter & Hanany, Eran, 2007. "Updating preferences with multiple priors," Theoretical Economics, Econometric Society, vol. 2(3), September.
    4. Epstein, Larry G. & Schneider, Martin, 2003. "Recursive multiple-priors," Journal of Economic Theory, Elsevier, vol. 113(1), pages 1-31, November.
    5. Siniscalchi, Marciano, 2011. "Dynamic choice under ambiguity," Theoretical Economics, Econometric Society, vol. 6(3), September.
    6. Hayashi, Takashi, 2008. "Regret aversion and opportunity dependence," Journal of Economic Theory, Elsevier, vol. 139(1), pages 242-268, March.
    7. Jörg Stoye, 2011. "Statistical decisions under ambiguity," Theory and Decision, Springer, vol. 70(2), pages 129-148, February.
    8. Stoye, Jörg, 2011. "Axioms for minimax regret choice correspondences," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2226-2251.
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    Cited by:
    1. Takashi Hayashi, 2011. "Context dependence and consistency in dynamic choice under uncertainty: the case of anticipated regret," Theory and Decision, Springer, vol. 70(4), pages 399-430, April.
    2. Stoye, Jörg, 2011. "Axioms for minimax regret choice correspondences," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2226-2251.

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