The Impact of Prior Choices on Subsequent Valuations

This paper develops and tests a model of how knowledge of past decisions affects future related decisions. A boundedly rational decision maker has to provide valuations for two alternatives that she has previously ranked in order of preference. The agent is uncertain about the importance of relevant attributes and can exert costly cognitive effort to resolve this uncertainty. Compared to when only valuation takes place, we show under certain conditions that knowledge of a prior choice between two alternatives has three primary effects: a) the spread of valuations between the two alternatives increases, b) decision makers will, in expectation, exert more effort in the valuation phase, and c) the more each attribute contributes to overall utility the greater the relative impact of prior choice is on valuation spread. The model predictions are then tested in a series of controlled lab experiments with actual prizes.