On Risk and Time Pressure: When to Think and When to Do

Abstract

We study the tradeoff between fundamental risk and time. A time-constrained agent has to solve a problem. She dynamically allocates effort between implementing a risky initial idea and exploring alternatives. Discovering an alternative implies progress that has to be converted to a solution. As time runs out, the chances of converting it in time shrink. We show that the agent may return to the initial idea after having left it in the past to explore alternatives. Our model helps explain so-called false starts. The agent takes risks early on to quickly arrive at a solution, sacrificing the prospects of alternatives.

Keywords: dynamic problem solving, endogenous bandits, lean techniques, time pressure

JEL Classification: D01, D83, O31