Discrete choice in continuous time : implications of an intertemporal version of the IIA property

Abstract

This paper proposes a particular behavioral axiom to characterize the stochastic structure of static discrete choice models with serially correlated utilities. This assumption extends Luce’s axiom; “Independence from Irrelevant Alternatives”, to the intertemporal setting. Under general regularity conditions the implication of this assumption is that the individual choice process is a Markov chain with transition probabilities that have a particularly simple structure. It is also discussed how the framework can be extended to deal with structural state dependence.

KEYWORDS: Choice over time, state dependence, Markovian choice processes, extremal processes, random utility processes, independence from irrelevant alternatives