Hidden actions and preferences for timing of resolution of uncertainty

We study preferences for timing of resolution of objective uncertainty in a simple 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 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. ∗We thank the National Science Foundation (Grants SES-0850980 and SES-0851066) for financial support, and Eddie Dekel and Pablo Schenone for helpful comments. These results were previously distributed under the title “A Subjective Model of Temporal Preferences”. †Correspondence address: Duke University, Department of Economics, 213 Social Sciences Building, 419 Chapel Drive, Box 90097, Durham, NC 27708-0097. Email: [email protected]. ‡Correspondence address: Northwestern University, Department of Economics, 2001 Sheridan Road, Evanston, IL 60208. Email: [email protected].