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The Price of Flexibility: Towards a Theory of Thinking Aversion

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Ortoleva, Pietro

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Abstract

The goal of this paper is to model an agent who dislikes large choice sets because of the "cost of thinking" involved in choosing from them. We take as a primitive a preference relation over lotteries of menus and impose novel axioms that allow us to separately identify the genuine preference over the content of menus, and the cost of choosing from them. Using this, we formally define the notion of thinking aversion, much in line with the definitions of risk or ambiguity aversion. We represent such preference as the difference between a monotone and affine evaluation of the content of the set and an anticipated thinking cost function that assigns to each set a thinking cost. We further extend this characterization to the case of monotonicity of the genuine rank and introduce a measure of comparative thinking aversion. Finally, we propose behavioral axioms that guarantee that the cost of thinking can be represented as the sum of the cost to find the optimal choice in a set and the cost to find out which is the optimal choice.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12242.

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Date of creation: Dec 2008
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Handle: RePEc:pra:mprapa:12242

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Related research
Keywords: Cost of Thinking; Contemplation Cost; Bounded Rationality; Preference Over Menus; Preference for Flexibility; Choice overload;

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

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  2. Douglas Gale & Hamid Sabourian, 2005. "Complexity and Competition," Econometrica, Econometric Society, vol. 73(3), pages 739-769, 05. [Downloadable!] (restricted)
  3. Rosenthal, Robert W, 1989. "A Bounded-Rationality Approach to the Study of Noncooperative Games," International Journal of Game Theory, Springer, vol. 18(3), pages 273-91.
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  5. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April. [Downloadable!] (restricted)
  6. Ghirardato, Paolo & Marinacci, Massimo, 2002. "Ambiguity Made Precise: A Comparative Foundation," Journal of Economic Theory, Elsevier, vol. 102(2), pages 251-289, February. [Downloadable!] (restricted)
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  10. Kalai, Ehud & Stanford, William, 1988. "Finite Rationality and Interpersonal Complexity in Repeated Games," Econometrica, Econometric Society, vol. 56(2), pages 397-410, March. [Downloadable!] (restricted)
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  11. Dekel, Eddie & Lipman, Barton L & Rustichini, Aldo, 2001. "Representing Preferences with a Unique Subjective State Space," Econometrica, Econometric Society, vol. 69(4), pages 891-934, July.
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  12. Osborne, Martin J & Rubinstein, Ariel, 1998. "Games with Procedurally Rational Players," American Economic Review, American Economic Association, vol. 88(4), pages 834-47, September. [Downloadable!] (restricted)
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  13. Epstein, Larry G. & Marinacci, Massimo & Seo, Kyoungwon, 2007. "Coarse contingencies and ambiguity," Theoretical Economics, Society for Economic Theory, vol. 2(4), pages 355-394, December. [Downloadable!]
  14. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 861-898, August. [Downloadable!] (restricted)
  15. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 1998. "Standard State-Space Models Preclude Unawareness," Econometrica, Econometric Society, vol. 66(1), pages 159-174, January.
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