Lecture Title: Commitment to Thinking

Speaker: Yiran Wang, Center for Behavioral Economics and Behavioral Finance, Southwestern University of Finance and Economics

Lecture Time: November 21, 2024, 10:00 AM

Lecture Venue: Room 123, College Building

Abstract of the Lecture:

Faced with a difficult decision, an individual may forego thinking and settle for a mediocre alternative. We model individuals who, anticipating such behavior, may at the ex-ante stage of lower information costs choose to exclude the mediocre option from their set of alternatives so as to compel themselves to better think in the future. Formally, we generalize the standard model of rational inattention by considering an individual with lower subjective costs of information acquisition at the ex-ante stage of choice of a menu than at the ex-post stage of choice from the menu. A novel axiom, weak preference for flexibility, characterizes our most general model and reflects the fundamental trade-off between commitment and flexibility that arises in this setting. Two further axioms, commitment to thinking hard and uniform scaling, characterize the special case when the ex-ante and ex-post cost functions have a linear relationship. Finally, we provide comparative statics results and a principal-agent application.

Speaker Information:

Yiran Wang is an Assistant Professor at the Center for Behavioral Economics and Behavioral Finance, Southwestern University of Finance and Economics. She received her Ph.D. in Economics from the Department of Economics at the University of Rochester. Her research interests include decision theory, behavioral economics, and information economics.