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Costly information acquisition and the temporal resolution of uncertainty

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  • Daniele Pennesi

    () (Université de Cergy-Pontoise, THEMA)

Abstract

This paper studies the choice of an individual who acquires information before choosing an action from a set of actions, whose consequences depend on the realization of a state of nature. Information processing can be costly, for example, due to limited attention. We show that the preference of the individual over sets of actions, is completely characterized by a preference for early resolution of uncertainty who becomes indifference when facing degenerate choices. When information acquisition is no longer part of the decision process, the individual is indifferent to the timing of resolution of uncertainty and she behaves according to the subjective learning model of Dillenberger et al. (2014).

Suggested Citation

  • Daniele Pennesi, 2015. "Costly information acquisition and the temporal resolution of uncertainty," THEMA Working Papers 2015-01, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  • Handle: RePEc:ema:worpap:2015-01
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    References listed on IDEAS

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    1. 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.
    2. Tutino, Antonella, 2008. "The rigidity of choice: lifetime savings under information-processing constraints," MPRA Paper 16744, University Library of Munich, Germany, revised 24 Jul 2009.
    3. Yusufcan Masatlioglu & Daisuke Nakajima & Erkut Y. Ozbay, 2012. "Revealed Attention," American Economic Review, American Economic Association, vol. 102(5), pages 2183-2205, August.
    4. Andrew Caplin & Mark Dean, 2015. "Revealed Preference, Rational Inattention, and Costly Information Acquisition," American Economic Review, American Economic Association, vol. 105(7), pages 2183-2203, July.
    5. Yulei Luo, 2008. "Consumption Dynamics under Information Processing Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 366-385, April.
    6. Cerreia-Vioglio, Simone, 2016. "Objective rationality and uncertainty averse preferences," Theoretical Economics, Econometric Society, vol. 11(2), May.
    7. Bartosz Mackowiak & Mirko Wiederholt, 2009. "Optimal Sticky Prices under Rational Inattention," American Economic Review, American Economic Association, vol. 99(3), pages 769-803, June.
    8. Filip Matêjka & Alisdair McKay, 2015. "Rational Inattention to Discrete Choices: A New Foundation for the Multinomial Logit Model," American Economic Review, American Economic Association, vol. 105(1), pages 272-298, January.
    9. Marcin Kacperczyk & Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Rational Attention Allocation Over the Business Cycle," NBER Working Papers 15450, National Bureau of Economic Research, Inc.
    10. Cerreia-Vioglio, S. & Maccheroni, F. & Marinacci, M. & Montrucchio, L., 2011. "Uncertainty averse preferences," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1275-1330, July.
    11. Dillenberger, David & Lleras, Juan Sebastián & Sadowski, Philipp & Takeoka, Norio, 2014. "A theory of subjective learning," Journal of Economic Theory, Elsevier, vol. 153(C), pages 287-312.
    12. repec:eee:jetheo:v:173:y:2018:i:c:p:56-94 is not listed on IDEAS
    13. Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Information Immobility and the Home Bias Puzzle," Journal of Finance, American Finance Association, vol. 64(3), pages 1187-1215, June.
    14. Mondria, Jordi, 2010. "Portfolio choice, attention allocation, and price comovement," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1837-1864, September.
    15. Ergin, Haluk & Sarver, Todd, 2015. "Hidden actions and preferences for timing of resolution of uncertainty," Theoretical Economics, Econometric Society, vol. 10(2), May.
    16. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    17. Kreps, David M & Porteus, Evan L, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Econometrica, Econometric Society, vol. 46(1), pages 185-200, January.
    18. Haluk Ergin & Todd Sarver, 2010. "A Unique Costly Contemplation Representation," Econometrica, Econometric Society, vol. 78(4), pages 1285-1339, July.
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    Cited by:

    1. repec:spr:etbull:v:6:y:2018:i:1:d:10.1007_s40505-017-0126-3 is not listed on IDEAS
    2. D. Pennesi, 2016. "When perfectionism becomes willpower," Working Papers wp1050, Dipartimento Scienze Economiche, Universita' di Bologna.

    More about this item

    Keywords

    Costly Information acquisition; Menu Choice; Rational Inattention; Timing of Resolution of Uncertainty;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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