Recursive Stochastic Choice

45 Pages Posted: 22 Sep 2013

See all articles by Drew Fudenberg

Drew Fudenberg

Massachusetts Institute of Technology (MIT)

Tomasz Strzalecki

Harvard University - Harvard Institute of Economic Research

Date Written: August 15, 2013

Abstract

We characterize two sorts of stochastic choice rules in which the agent makes current decisions using a forward-looking value function that takes future randomizations into account. Both sorts of rules generalize logistic choice, and are equivalent to it in static problems. The rules differ in how the agent views future choice sets and how he views his future randomizations. One rule is equivalent to the discounted logit used in applied work, and exhibits a “preference for flexibility;” the other is “error-averse” and penalizes the addition of undesirable choices to a menu.

Suggested Citation

Fudenberg, Drew and Strzalecki, Tomasz, Recursive Stochastic Choice (August 15, 2013). Available at SSRN: https://ssrn.com/abstract=2328953 or http://dx.doi.org/10.2139/ssrn.2328953

Drew Fudenberg

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Tomasz Strzalecki (Contact Author)

Harvard University - Harvard Institute of Economic Research ( email )

Department of Economics
200 Littauer Center
Cambridge, MA 02138
United States

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