An experiment was conducted to test a rational principle of decision making called dynamic consistency. Decision makers were presented with a sequence of two gambles, and they were asked to make two decisions. Before the first gamble was played, they made a plan for the second gamble contingent on the outcome of the first gamble; then they played the first gamble and were asked to make a final decision regarding the second gamble after experiencing the first outome. Violations of dynamic consistency were observed, e.g., decision makers planned to the gamble a second time if the first gamble was won; but when in fact the first gamble was won, they switched and chose not to play the gamble a second time. Two models of dynamic inconsistency were compared at the individual level: One assumes that experience shifts the reference point and changes the utility associated with the final choice; another assumes that experience changes the subjective probability associated with the final choice. The reference point model provided the best account for the majority of participants.
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