September 27, 2011, 11:00–12:30
Room Amphi S
Economic Theory Seminar
There are many situations in which individuals have a choice of whether or not to observe the eventual outcome. In these instances, individuals often prefer to avoid observing the outcome. The standard von Neumann-Morgenstern (vNM) Expected Utility model cannot accommodate these cases, since it does not distinguish between lotteries for which outcomes are observed by the agent and lotteries for which they are not. I develop a simple axiomatic model that admits preferences for observing the outcome or remaining in doubt. I then use this model to analyze the connection between the agent's attitude towards risk, doubt, and what I refer to as `optimism'. This framework accommodates a wide array of field and experimental observations that violate the vNM model, and that may not seem related, prima facie. For instance, this framework accommodates self-handicapping, in which an agent chooses to impair his own performance. It also admits a status quo bias, without having recourse to framing effects. In a political economy setting, a voter avoids free information if he believes other voters will do the same.