Stopping with anticipated regret
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.
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.:
- Stoye, Jörg, 2011. "Axioms for minimax regret choice correspondences," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2226-2251.
- Klibanoff, Peter & Hanany, Eran, 2007. "Updating preferences with multiple priors," Theoretical Economics, Econometric Society, vol. 2(3), September.
- Hayashi, Takashi, 2008. "Regret aversion and opportunity dependence," Journal of Economic Theory, Elsevier, vol. 139(1), pages 242-268, March.
- Epstein, Larry G. & Schneider, Martin, 2003.
Journal of Economic Theory,
Elsevier, vol. 113(1), pages 1-31, November.
- Larry G. Epstein & Martin Schneider, 2001. "Recursive Multiple-Priors," RCER Working Papers 485, University of Rochester - Center for Economic Research (RCER).
- Siniscalchi, Marciano, 2011. "Dynamic choice under ambiguity," Theoretical Economics, Econometric Society, vol. 6(3), September.
- Marciano Siniscalchi, 2006. "Dynamic Choice Under Ambiguity," Discussion Papers 1430, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Jörg Stoye, 2011. "Statistical decisions under ambiguity," Theory and Decision, Springer, vol. 70(2), pages 129-148, February.
- David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
- Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
- E. S. Phelps & R. A. Pollak, 1968. "On Second-Best National Saving and Game-Equilibrium Growth," Review of Economic Studies, Oxford University Press, vol. 35(2), pages 185-199.
- 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. Full references (including those not matched with items on IDEAS)