IDEAS home Printed from https://ideas.repec.org/a/the/publsh/1340.html
   My bibliography  Save this article

Hidden actions and preferences for timing of resolution of uncertainty

Author

Listed:
  • ,

    (Department of Economics, University of California-Berkeley)

  • ,

    (Department of Economics, Duke University)

Abstract

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.

Suggested Citation

  • , & ,, 2015. "Hidden actions and preferences for timing of resolution of uncertainty," Theoretical Economics, Econometric Society, vol. 10(2), May.
    • Handle: RePEc:the:publsh:1340
    as

    Download full text from publisher

    File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20150489/13034/395
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Epstein, Larry G. & Seo, Kyoungwon, 2009. "Subjective states: A more robust model," Games and Economic Behavior, Elsevier, vol. 67(2), pages 408-427, November.
    2. Grant, Simon & Kajii, Atsushi & Polak, Ben, 1998. "Intrinsic Preference for Information," Journal of Economic Theory, Elsevier, vol. 83(2), pages 233-259, December.
    3. Olivier Compte & Philippe Jehiel, 2007. "Auctions and information acquisition: sealed bid or dynamic formats?," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 355-372, June.
    4. Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory and Anticipatory Feelings," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 55-79.
    5. Machina, Mark J., 1984. "Temporal risk and the nature of induced preferences," Journal of Economic Theory, Elsevier, vol. 33(2), pages 199-231, August.
    6. D. Gale, 1967. "A Geometric Duality Theorem with Economic Applications," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 34(1), pages 19-24.
    7. Larry G. Epstein & Stanley E. Zin, 2013. "Substitution, risk aversion and the temporal behavior of consumption and asset returns: A theoretical framework," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 12, pages 207-239, World Scientific Publishing Co. Pte. Ltd..
    8. Larry G. Epstein, 2008. "Living with Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(4), pages 1121-1141.
    9. Tomasz Strzalecki, 2013. "Temporal Resolution of Uncertainty and Recursive Models of Ambiguity Aversion," Econometrica, Econometric Society, vol. 81(3), pages 1039-1074, May.
    10. Spence, Michael & Zeckhauser, Richard J, 1972. "The Effect of the Timing of Consumption Decisions and the Resolution of Lotteries on the Choice of Lotteries," Econometrica, Econometric Society, vol. 40(2), pages 401-403, March.
    11. Philippe Weil, 1993. "Precautionary Savings and the Permanent Income Hypothesis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(2), pages 367-383.
    12. 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.
    13. TallariniJr., Thomas D., 2000. "Risk-sensitive real business cycles," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 507-532, June.
    14. Ortoleva, Pietro, 2013. "The price of flexibility: Towards a theory of Thinking Aversion," Journal of Economic Theory, Elsevier, vol. 148(3), pages 903-934.
    15. Eddie Dekel & Barton L Lipman & Aldo Rustichini & Todd Sarver, 2007. "Representing Preferences with a Unique Subjective State Space: A Corrigendum -super-1," Econometrica, Econometric Society, vol. 75(2), pages 591-600, March.
    16. 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.
    17. David M. Kreps & Evan L. Porteus, 2013. "Temporal von Neumann—Morgenstern and Induced Preferences," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 11, pages 181-206, World Scientific Publishing Co. Pte. Ltd..
    18. 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 263-286, April.
    19. Kreps, David M, 1979. "A Representation Theorem for "Preference for Flexibility"," Econometrica, Econometric Society, vol. 47(3), pages 565-577, May.
    20. Mossin, Jan, 1969. "A Note on Uncertainty and Preferences in a Temporal Context," American Economic Review, American Economic Association, vol. 59(1), pages 172-174, March.
    21. 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.
    22. David S. Ahn & Todd Sarver, 2013. "Preference for Flexibility and Random Choice," Econometrica, Econometric Society, vol. 81(1), pages 341-361, January.
    23. Todd Sarver, 2008. "Anticipating Regret: Why Fewer Options May Be Better," Econometrica, Econometric Society, vol. 76(2), pages 263-305, March.
    24. Takashi Hayashi, 2005. "Intertemporal substitution, risk aversion and ambiguity aversion," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(4), pages 933-956, June.
    25. Todd Sarver, 2012. "Optimal Reference Points and Anticipation," Discussion Papers 1566, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    26. 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.
    27. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Larry G. Epstein & Emmanuel Farhi & Tomasz Strzalecki, 2014. "How Much Would You Pay to Resolve Long-Run Risk?," American Economic Review, American Economic Association, vol. 104(9), pages 2680-2697, September.
    2. Pennesi, Daniele, 2015. "Costly information acquisition and the temporal resolution of uncertainty," Journal of Mathematical Economics, Elsevier, vol. 60(C), pages 115-122.
    3. Qiu, Wenfeng & Ahn, David S., 2021. "Uncertainty from the small to the large," Journal of Economic Theory, Elsevier, vol. 198(C).
    4. Todd Sarver, 2012. "Optimal Reference Points and Anticipation," Discussion Papers 1566, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Nobuo Koida, 2018. "Anticipated stochastic choice," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(3), pages 545-574, May.
    6. Mihm, Maximilian & Ozbek, Kemal, 2018. "Mood-driven choices and self-regulation," Journal of Economic Theory, Elsevier, vol. 176(C), pages 727-760.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eddie Dekel & Barton L. Lipman, 2010. "How (Not) to Do Decision Theory," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 257-282, September.
    2. Alexander L. Brown & Hwagyun Kim, 2014. "Do Individuals Have Preferences Used in Macro-Finance Models? An Experimental Investigation," Management Science, INFORMS, vol. 60(4), pages 939-958, April.
    3. Todd Sarver, 2012. "Optimal Reference Points and Anticipation," Discussion Papers 1566, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. David K. Backus & Bryan R. Routledge & Stanley E. Zin, 2005. "Exotic Preferences for Macroeconomists," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 319-414, National Bureau of Economic Research, Inc.
    5. Higashi, Youichiro & Hyogo, Kazuya & Takeoka, Norio, 2009. "Subjective random discounting and intertemporal choice," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1015-1053, May.
    6. André Lapied & Thomas Rongiconi, 2013. "Ambiguity as a Source of Temptation: Modeling Unstable Beliefs," Working Papers halshs-00797631, HAL.
    7. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 2009. "Temptation-Driven Preferences," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(3), pages 937-971.
    8. Riella, Gil, 2013. "Preference for Flexibility and Dynamic Consistency," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2467-2482.
    9. Larry G. Epstein & Emmanuel Farhi & Tomasz Strzalecki, 2014. "How Much Would You Pay to Resolve Long-Run Risk?," American Economic Review, American Economic Association, vol. 104(9), pages 2680-2697, September.
    10. Schenone, Pablo, 2016. "Identifying subjective beliefs in subjective state space models," Games and Economic Behavior, Elsevier, vol. 95(C), pages 59-72.
    11. Mohammed Abdellaoui & Enrico Diecidue & Emmanuel Kemel & Ayse Onculer, 2022. "Temporal Risk: Utility vs. Probability Weighting," Management Science, INFORMS, vol. 68(7), pages 5162-5186, July.
    12. Todd Sarver & Haluk Ergin, 2009. "A Subjective Model of Temporal Preferences," 2009 Meeting Papers 1183, Society for Economic Dynamics.
    13. Gorno, Leandro, 2016. "Additive representation for preferences over menus in finite choice settings," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 41-47.
    14. Eisenbach, Thomas M. & Schmalz, Martin C., 2016. "Anxiety in the face of risk," Journal of Financial Economics, Elsevier, vol. 121(2), pages 414-426.
    15. Nengjiu Ju & Jianjun Miao, 2012. "Ambiguity, Learning, and Asset Returns," Econometrica, Econometric Society, vol. 80(2), pages 559-591, March.
    16. Eric Danan & Ani Guerdjikova & Alexander Zimper, 2012. "Indecisiveness aversion and preference for commitment," Theory and Decision, Springer, vol. 72(1), pages 1-13, January.
    17. Lorenzo Maria Stanca, 2023. "Recursive Preferences, Correlation Aversion, and the Temporal Resolution of Uncertainty," Papers 2304.04599, arXiv.org, revised Jul 2023.
    18. Larbi Alaoui, 2012. "The value of useless information," Working Papers 625, Barcelona School of Economics.
    19. Ortoleva, Pietro, 2013. "The price of flexibility: Towards a theory of Thinking Aversion," Journal of Economic Theory, Elsevier, vol. 148(3), pages 903-934.
    20. Philipp Sadowski, 2011. "Contingent Preference for Flexibility: Eliciting Beliefs from Behavior," Levine's Working Paper Archive 661465000000001189, David K. Levine.

    More about this item

    Keywords

    Temporal preferences; preference for flexibility; hidden action; subjective uncertainty;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:the:publsh:1340. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Martin J. Osborne (email available below). General contact details of provider: http://econtheory.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.