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Framing Contingencies

Econometrica 2010 78(2), 655-695
The subjective likelihood of a contingency often depends on the manner in which it is described to the decision maker. To accommodate this dependence, we introduce a model of decision making under uncertainty that takes as primitive a family of preferences indexed by partitions of the state space. Each partition corresponds to a description of the state space. We characterize the following partition-dependent expected utility representation. The decision maker has a nonadditive set function ν over events. Given a partition of the state space, she computes expected utility with respect to her partition-dependent belief, which weights each cell in the partition by ν. Nonadditivity of ν allows the probability of an event to depend on the way in which the state space is described. We propose behavioral definitions for those events that are transparent to the decision maker and those that are completely overlooked, and connect these definitions to conditions on the representation.

A Unique Costly Contemplation Representation

Econometrica 2010 78(4), 1285-1339
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.