Journal Article

Thinking Ahead: The Decision Problem

Patrick Bolton and Antoine Faure-Grimaud

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 76, issue 4, pages 1205-1238
Published in print October 2009 | ISSN: 0034-6527
Published online October 2009 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2009.00554.x
Thinking Ahead: The Decision Problem

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  • Information, Knowledge, and Uncertainy
  • Household Behaviour and Family Economics

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We propose a model of costly decision making based on time-costs of deliberating current and future decisions. We model an individual decision-maker's thinking process as a thought-experiment that takes time, and lets the decision maker ‘think ahead’ about future decision problems in yet unrealized states of nature. By formulating an intertemporal, state-contingent, planning problem which may involve costly deliberation in every state of nature, and by letting the decision maker deliberate ahead of the realization of a state, we attempt to capture the basic observation that individuals generally do not think through a complete action plan. Instead, individuals prioritize their thinking and leave deliberations on less important decisions to the time or event when they arise.

Keywords: D11; D81

Journal Article.  14630 words.  Illustrated.

Subjects: Information, Knowledge, and Uncertainy ; Household Behaviour and Family Economics

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