2008 Articles

Thinking ahead : the decision problem

Bolton, Patrick; Faure-Grimaud, Antoine

We propose a model of costly decision-making based on time-costs of deliberating current and future decisions. We model an individual decision maker's thinking process as a thought-experiment that takes time and let the decision maker "think ahead" 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 observation 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.