Stopping with anticipated regret

Hayashi, T. (2009) Stopping with anticipated regret. Journal of Mathematical Economics, 45(7-8), pp. 479-490. (doi:10.1016/j.jmateco.2009.03.011)

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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. <p/>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. <p/>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.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Hayashi, Professor Takashi
Authors: Hayashi, T.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Mathematical Economics
ISSN:0304-4068
ISSN (Online):1873-1538
Published Online:08 April 2009

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