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Thinking Ahead: The Decision Problem

  • Patrick Bolton
  • Antoine Faure-Grimaud

We propose a model of bounded rationality based on time-costs of deliberating current and future decisions. We model an individual decision maker%u2019s thinking process as a thought-experiment that takes time and let the decision maker %u201Cthink ahead%u201D about future decision problems in yet unrealized states of nature. By formulating an intertemporal, state-contingent, planning problem, which may involve costly deliberation in every state of nature, and by letting the decision-maker deliberate ahead of the realization of a state, we attempt to capture the basic idea that individuals generally do not think through a complete action-plan. Instead, individuals prioritize their thinking and leave deliberations on less important decisions to the time or event when they arise.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11867.

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Date of creation: Dec 2005
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Publication status: published as Patrick Bolton & Antoine Faure-Grimaud, 2009. "Thinking Ahead: The Decision Problem," Review of Economic Studies, Blackwell Publishing, vol. 76(4), pages 1205-1238, October.
Handle: RePEc:nbr:nberwo:11867
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  18. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
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  25. Gabaix, Xavier & Laibson, David Isaac & Moloche, Guillermo & Stephen, Weinberg, 2003. "The allocation of attention: theory and evidence," MPRA Paper 47339, University Library of Munich, Germany.
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