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Value of a Clear Desk: Sequencing Decisions when Decision Capacity is Limited

Anthony Heyes () and Sandeep Kapur

No 1813, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: Postponing a decision may allow a better decision later. However, depending on what else comes up, there may never be a moment when it makes sense to come back to a postponed decision, leaving potential gains unrealized. We develop a model of an agent with limited decision-making capacity who faces a sequence of decisions that vary stochastically in their importance and improvability. In each period he can either act on the newly-arrived opportunity or return to one carried from earlier. The prospect of future congestion in decisions generates an incentive to make prompt decisions, to "keep a clear desk". The strength of that imperative is: (1) increasing in the expected importance of future opportunities but decreasing in the dispersion of their importance; (2) decreasing in the expected improvability of future opportunities, but ambiguously influenced by the dispersion of that improvability. The analysis illuminates some decision practices that would otherwise be hard to rationalize. Multiple equilibria in some cases rationalize persistently different behaviour by two agents facing (almost) identical sequences of choices. The setting allows for a generalization of the concept of option value to congested decision environments and, by accounting for a plausible cost to postponement of action, offers a counter-force to the precautionary principle.

Keywords: Dynamic decision-making, limited attention, organizational bandwidth; committees, precautionary principle, option value. (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-mic
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https://eprints.bbk.ac.uk/id/eprint/25403 First version, 2018

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