Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192156 
Year of Publication: 
1996
Series/Report no.: 
Discussion Papers No. 172
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
An important problem in the analysis of intertemporal choice processes is how to justify the choice of mathematical structure of the transition probabilities. A related and delicate identification problem is to separate the effect of unobserved variables from the influence on preferences from past choice behavior (state dependence). The present paper proposes a particular behavioral assumption to characterize the stochastic structure of intertemporal discrete choice models under the absence of state dependence. This assumption extends Luce axiom; "Independence from Irrelevant Alternatives", to the intertemporal context. Under specific regularity conditions the implication of these assumptions is that the individual choice process is a Markov chain with a particularly simple structure of the transition probabilities. By drawing on results obtained by Dagsvik (1983, 1988) it is demonstrated that this structure is consistent with an intertemporal and life cycle consistent random utility model where the utilities are independent extremal processes in time. Finally, the framework is extended to allow for state dependence and time varying choice sets.
Subjects: 
Life cycle consistent discrete choice
taste persistence
state dependence
Markovian choice processes
extremal processes
random utility processes
independence from irrelevant alternatives.
JEL: 
C25
C41
D91
Document Type: 
Working Paper
Document Version: 
Digitized Version

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