Regret and Information Avoidance

Empirical evidence suggests that individuals selectively avoid information, depending on a relevant past choice or lack thereof. We address these findings by studying an agent whose choice behavior can be modeled as if she trades off two conflicting effects of information. The first is a psychological cost from the regret about past choices that are revealed to be suboptimal by the information, whereas the second is the instrumental value of information for making better-informed choices in the future. The primitive of our study is the agent's preference over pairs consisting of a set of menus and an information structure. A set of menus captures a three-period decision problem. Our main axioms reflect the agent's desire to limit her options in period one and to have more flexibility in period two. We also posit axioms that connect the agent's consumption choice with her information choice. A subjective version of the model is examined where the agent's information choice is not observable. We show that all parameters in both versions of the model can be uniquely identified from the choice behavior