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Hidden actions and preferences for timing of resolution of uncertainty

  • Sarver, Todd

    ()

    (Department of Economics, Duke University)

  • Ergin, Haluk

    ()

    (Department of Economics, University of California-Berkeley)

We study preferences for timing of resolution of objective uncertainty in a menu-choice model with two stages of information arrival. We characterize a general class of utility representations called hidden action representations, which interpret an intrinsic preference for timing of resolution of uncertainty as if an unobservable action is taken between the resolution of the two periods of information arrival. These representations permit a richer class of preferences for timing than was possible in the model of Kreps and Porteus (1978) by incorporating a preference for flexibility. Our model contains several special cases where this hidden action can be given a novel economic interpretation.

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Handle: RePEc:the:publsh:1340
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  2. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2006. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Econometrica, Econometric Society, vol. 74(6), pages 1447-1498, November.
  3. Simon Grant & Atsushi Kajii & Ben Polak, 2000. "Temporal Resolution of Uncertainty and Recursive Non-Expected Utility Models," Econometrica, Econometric Society, vol. 68(2), pages 425-434, March.
  4. Strzalecki, Tomasz, 2013. "Temporal Resolution of Uncertainty and Recursive Models of Ambiguity Aversion," Scholarly Articles 12967691, Harvard University Department of Economics.
  5. Thomas Tallarini, . "Risk-Sensitive Real Business Cycles," GSIA Working Papers 1997-35, Carnegie Mellon University, Tepper School of Business.
  6. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-69, July.
  7. Kraus, Alan & Sagi, Jacob S., 2006. "Inter-temporal preference for flexibility and risky choice," Journal of Mathematical Economics, Elsevier, vol. 42(6), pages 698-709, September.
  8. Larry G. Epstein, 2007. "Living with risk," RCER Working Papers 534, University of Rochester - Center for Economic Research (RCER).
  9. Ortoleva, Pietro, 2013. "The price of flexibility: Towards a theory of Thinking Aversion," Journal of Economic Theory, Elsevier, vol. 148(3), pages 903-934.
  10. Todd Sarver, 2008. "Anticipating Regret: Why Fewer Options May Be Better," Econometrica, Econometric Society, vol. 76(2), pages 263-305, 03.
  11. Ortoleva, Pietro, 2008. "The Price of Flexibility: Towards a Theory of Thinking Aversion," MPRA Paper 12242, University Library of Munich, Germany.
  12. Grant, Simon & Kajii, Atsushi & Polak, Ben, 1998. "Intrinsic Preference for Information," Journal of Economic Theory, Elsevier, vol. 83(2), pages 233-259, December.
  13. Todd Sarver, 2012. "Optimal Reference Points and Anticipation," Discussion Papers 1566, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Caplin, Andrew & Leahy, John, 1997. "Psychological Expected Utility Theory and Anticipatory Feelings," Working Papers 97-37, C.V. Starr Center for Applied Economics, New York University.
  15. Machina, Mark J., 1984. "Temporal risk and the nature of induced preferences," Journal of Economic Theory, Elsevier, vol. 33(2), pages 199-231, August.
  16. Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April.
  17. 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.
  18. Eddie eckel & Barton L Lipman & Aldo Rustichini & Todd Sarver, 2005. "Representing Preferences with a Unique Subjective State Space: Corrigendum," Boston University - Department of Economics - Working Papers Series WP2005-042, Boston University - Department of Economics.
  19. Weil, Philippe, 1993. "Precautionary Savings and the Permanent Income Hypothesis," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 367-83, April.
  20. Mossin, Jan, 1969. "A Note on Uncertainty and Preferences in a Temporal Context," American Economic Review, American Economic Association, vol. 59(1), pages 172-74, March.
  21. Kreps, David M. & Porteus, Evan L., 1979. "Temporal von neumann-morgenstern and induced preferences," Journal of Economic Theory, Elsevier, vol. 20(1), pages 81-109, February.
  22. Takashi Hayashi, 2005. "Intertemporal substitution, risk aversion and ambiguity aversion," Economic Theory, Springer, vol. 25(4), pages 933-956, 06.
  23. Kreps, David M, 1979. "A Representation Theorem for "Preference for Flexibility"," Econometrica, Econometric Society, vol. 47(3), pages 565-77, May.
  24. David S. Ahn & Todd Sarver, 2013. "Preference for Flexibility and Random Choice," Econometrica, Econometric Society, vol. 81(1), pages 341-361, 01.
  25. Epstein, Larry G. & Seo, Kyoungwon, 2009. "Subjective states: A more robust model," Games and Economic Behavior, Elsevier, vol. 67(2), pages 408-427, November.
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