Costly Contemplation∗

We study preferences over opportunity sets. Such preferences are monotone if every opportunity set is at least as good as its subsets. We prove a representation theorem for monotone preferences. The representation suggests that the decision maker optimally contemplates his mood before making his ultimate choice from his opportunity set. We show that our model reduces to that of Kreps (1979) when contemplation is costless and to the standard rational model if the agent has no preference for flexibility. ∗I thank seminar participants at Berkeley, Bilkent, Columbia, Kellogg, Kennedy School, Koç, Northwestern, NYU, MIT, Olin School, Princeton, Stanford GSB, and Upenn for comments and suggestions. I am grateful to Faruk Gul and Wolfgang Pesendorfer for their valuable advice in the development of the paper. I am particularly indebted to Faruk Gul for his continuous support and guidance. †Correspondence address: MIT, Department of Economics, E52-274A, 50 Memorial Drive, Cambridge, MA 02142. Email: [email protected].