Hidden Actions and Preferences for Timing of Resolution of Uncertainty

Haluk Ergin and Todd Sarver

Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: We study preferences for timing of resolution of objective uncertainty in a menu-choice model with two stages of information arrival. We characterize a general class of utility representations called hidden action representations, which interpret an intrinsic preference for timing of resolution of uncertainty as if an unobservable action is taken between the resolution of the two periods of information arrival. These representations permit a richer class of preferences for timing than was possible in the model of Kreps and Porteus (1978) by incorporating a preference for flexibility. Our model contains several special cases where this hidden action can be given a novel economic interpretation, including a subjective-state-space model of ambiguity aversion and a model of costly contemplation.

Keywords: temporal preferences; preference for flexibility; hidden action; subjective uncertainty (search for similar items in EconPapers)
Date: 2012-09-14
New Economics Papers: this item is included in nep-mic and nep-upt
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Journal Article: Hidden actions and preferences for timing of resolution of uncertainty (2015)
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