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The price of flexibility: Towards a theory of Thinking Aversion

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  • Ortoleva, Pietro

Abstract

We study the behavior of an agent who dislikes large choice sets because of the ‘cost of thinking’ involved in choosing from them. Focusing on preferences over lotteries of menus, we introduce the notion of Thinking Aversion. We characterize preferences as the difference between an affine evaluation of the content of the menu and a function that assigns to each menu a thinking cost. We provide conditions for which this cost can be seen as the cost that the agent has to sustain to figure out her preferences in order to make a choice.

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  • Ortoleva, Pietro, 2013. "The price of flexibility: Towards a theory of Thinking Aversion," Journal of Economic Theory, Elsevier, vol. 148(3), pages 903-934.
  • Handle: RePEc:eee:jetheo:v:148:y:2013:i:3:p:903-934
    DOI: 10.1016/j.jet.2012.10.009
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    More about this item

    Keywords

    Cost of thinking; Contemplation cost; Bounded rationality; Preference over menus; Preference for flexibility; Choice overload;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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