Discussion paper

DP14447 Identification of intertemporal preferences in history-dependent dynamic discrete choice models

We study the identification of intertemporal preferences in a stationary dynamic discrete decision model. We propose a new approach which focuses on problems which are intrinsically dynamic: either there is endogenous variation in the choice set, or preferences depend directly on the history. History dependence links the choices of the decision-maker across periods in a more fundamental sense standard dynamic discrete choice models typically assume. We consider both exponential discounting as well as the quasi-hyperbolic discounting models of time preferences. We show that if the utility function or the choice set depends on the current states as well as the past choices and/or states, then time preferences are non-parametrically point-identified separately from the utility function under mild conditions on the data and we may also recover the instantaneous utility function without imposing any normalization on the utility across states.

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Citation

Levy, M and P Schiraldi (2020), ‘DP14447 Identification of intertemporal preferences in history-dependent dynamic discrete choice models‘, CEPR Discussion Paper No. 14447. CEPR Press, Paris & London. https://cepr.org/publications/dp14447