Thinking Ahead: The Decision Problem
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NBER Working Paper No. 11867
Issued in December 2005
NBER Program(s): CF
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.
Published: Patrick Bolton & Antoine Faure-Grimaud, 2009. "Thinking Ahead: The Decision Problem," Review of Economic Studies, Blackwell Publishing, vol. 76(4), pages 1205-1238, October.
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