Decision,irreversibility and flexibility: The irreversibility effect re-examined

In a seminal article C. Henry (1974) presented the irreversibility effect, which pointed out that under uncertainty, the optimal sequence of decisions depends on not only the payoffs, but also the flexibility, in terms of availability of future options, associated with each decision. But the irreversibility effect pertained to certain particular conditions and definitions. In this paper, a more general model is developed to re-examine the notion of an irreversible decision, its relation with flexibility and the irreversibility effect. It is shown through two propositions that the irreversibility effect need not hold always and the notion of irreversibiity can be used only under certain circumstances to derive the optimal sequence of decisions ex-ante.