Econometrica: Jul, 2010, Volume 78, Issue 4
A Unique Costly Contemplation Representation
Haluk Ergin, Todd Sarver
We study preferences over menus which can be represented as if the individual is uncertain of her tastes, but is able to engage in costly contemplation before selecting an alternative from a menu. Since contemplation is costly, our key axiom, aversion to contingent planning, reflects the individual's preference to learn the menu from which she will be choosing prior to engaging in contemplation about her tastes for the alternatives. Our representation models contemplation strategies as subjective signals over a subjective state space. The subjectivity of the state space and the information structure in our representation makes it difficult to identify them from the preference. To overcome this issue, we show that each signal can be modeled in reduced form as a measure over ex post utility functions without reference to a state space. We show that in this reduced‐form representation, the set of measures and their costs are uniquely identified. Finally, we provide a measure of comparative contemplation costs and characterize the special case of our representation where contemplation is costless.
Supplement to "A Unique Costly Contemplation Representation"
Additional background information for the paper as well as proofs.