THE ALLOCATION OF TIME IN DECISION-MAKING

We study the allocation of time across decision problems. If a decision-maker (1) has noisy estimates of value, (2) improves those estimates the longer she analyzes a choice problem, and (3) allocates time optimally, then the decision-maker should spend less time choosing when the value gap between two options is relatively large. To test this prediction we asked subjects to make 27 binary incentive-compatible intertemporal choices, and measure response time for each decision. Our time allocation model explains 54% of the variance in average decision time. These results support the view that decision-making is a cognitively costly activity that uses time as an input allocated according to cost-benefit principles. (JEL: C0, D01, D03, D87, D9)