Working Paper: NBER ID: w11867
Authors: Patrick Bolton; Antoine Faure-Grimaud
Abstract: We propose a model of bounded rationality 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 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.
Keywords: No keywords provided
JEL Codes: D81; D84; C61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| costly deliberation (D72) | delay in decision-making (D91) |
| urgent decision problems (C44) | sequence of decisions (D79) |
| thinking ahead (D84) | reduced time lag in investment decisions (G31) |
| thinking ahead (D84) | enhanced expected payoffs (D84) |