Dynamic Logit with Choice Aversion∗

We characterize a generalization of discounted logistic choice that incorporates a parameter to capture different views the agent might have about the costs and benefits of larger choice sets. The discounted logit model used in the empirical literature is the special case that displays a “preference for flexibility” in the sense that the agent always prefers to add additional items to a menu. Other cases display varying levels of “choice aversion,” where the agent prefers to remove items from a menu if their ex ante value is below a threshold. We show that higher choice aversion, as measured by dislike of bigger menus, also corresponds to an increased preference for putting off decisions as late as possible. ∗A previous version of this paper was titled “Recursive Stochastic Choice.” We thank Steve Berry, Eddie Dekel, Glenn Ellison, Phil Haile, Igal Hendel, Paulo Natenzon, Ariel Pakes, Wolfgang Pesendofer, Phil Reny, Satoru Takahashi, Jan Werner, and Joel Sobel and four anonymous referees for helpful comments and conversations, and Mira Frick for expert research assistance. Parts of this research were conducted while D. Fudenberg was visiting the Cowles Foundation at Yale, and T. Strzalecki was visiting the Institute for Advanced Studies at Hebrew University and then the Cowles Foundation. We are grateful for their support and hospitality, and also that of the Sloan Foundation and NSF grants SES-0954162, SES-1123729, and CAREER grant SES-1255062. †Department of Economics, Harvard University. Email: [email protected] ‡Department of Economics, Harvard University. Email: tomasz [email protected]