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On Risk and Time Pressure: When to Think and When to Do

Author

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  • Christoph Carnehl
  • Johannes Schneider

Abstract

We study the tradeoff between fundamental risk and time. A time-constrained agent has to solve a problem. She dynamically allocates effort between implementing a risky initial idea and exploring alternatives. Discovering an alternative implies progress that has to be converted to a solution. As time runs out, the chances of converting it in time shrink. We show that the agent may return to the initial idea after having left it in the past to explore alternatives. Our model helps explain so-called false starts. To finish fast, the agent delays exploring alternatives reducing the overall success probability.

Suggested Citation

  • Christoph Carnehl & Johannes Schneider, 2022. "On Risk and Time Pressure: When to Think and When to Do," CRC TR 224 Discussion Paper Series crctr224_2022_342, University of Bonn and University of Mannheim, Germany.
  • Handle: RePEc:bon:boncrc:crctr224_2022_342
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp342
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    More about this item

    Keywords

    dynamic problem solving; endogenous bandits; time pressure;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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