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The Price of Flexibility: Towards a Theory of Thinking Aversion

Ortoleva, Pietro (2008): The Price of Flexibility: Towards a Theory of Thinking Aversion.

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Abstract

The goal of this paper is to model an agent who dislikes large choice sets because of the "cost of thinking" involved in choosing from them. We take as a primitive a preference relation over lotteries of menus and impose novel axioms that allow us to separately identify the genuine preference over the content of menus, and the cost of choosing from them. Using this, we formally define the notion of thinking aversion, much in line with the definitions of risk or ambiguity aversion. We represent such preference as the difference between a monotone and affine evaluation of the content of the set and an anticipated thinking cost function that assigns to each set a thinking cost. We further extend this characterization to the case of monotonicity of the genuine rank and introduce a measure of comparative thinking aversion. Finally, we propose behavioral axioms that guarantee that the cost of thinking can be represented as the sum of the cost to find the optimal choice in a set and the cost to find out which is the optimal choice.

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