Intertemporal discrete choice, random tastes and functional form

Abstract

An important problem in the analysis of intertemporal choice processes is to separate the effect of unobserved temporal persistent variables from the influence on preferences from past choice behavior (state dependence). The present paper discusses a behavioral Axiom in the presence of random preferences relative to a discrete alternative set and demonstrates that this Axiom yields joint utility processes that belong to the class of multivariate extremal processes. Specifically, the Axiom states that if there is no effect from past choice behavior on current preferences then the distribution of the current indirect utility conditional on past choice history is independent of the past choice history. When utilities are extremal processes Dagsvik (1988) demonstrated that the corresponding choice process is Markovian with transition probabilities that have a simple structure.