Prior knowledge and monotone decision problems

Abstract

This paper identifies cognitive conditions under which a rational individual or group decision-maker will want to commit ex ante to some choice restrictions, in order to get extra information about an uncertain state of nature. We show that the implemented limitations will then bring her to solve a monotone decision problem. This provides a behavioral/microeconomic foundation for the recurrence of this type of problem in many contexts. From another angle, the analysis explains why and when individuals and organizations resort to automatic responses or routines in some circumstances, and how this can shape their environment.