Definitivity Avoidance

Abstract

In this paper we introduce Definitivity Avoidance, a behavioral bias that induces individuals to inefficiently shy away from choices that involve a final judgment. We model its effects and explore how the introduction of explicit exposure mechanisms can contribute to attenuate them. Using a unique natural experiment - the introduction of a technology assisted review system in professional tennis - we test the model predictions and confirm the relevance of this behavioral bias in a competitive setting. Possible instances of definitivity avoidance can be identified in multiple contexts such as debt roll-over decisions, inefficient asset allocations, court rulings, and child adoptions. The broad applicability of our model carries relevant policy implications as it provides a conceptual framework for the design of institutions to alleviate the welfare costs associated with definitivity avoidance.

Keywords: Prospect Theory, Natural experiment, Uncertainty, Decision Avoidance, Behavioral Economics

JEL Classification: D81, D91, C93