Abstract

A decision maker (DM) selects a project from a set of alternatives with uncertain productivity. After the choice, she observes a signal about productivity and decides how much effort to put in. This paper analyzes the optimal decision problem of the DM who rationally filters information to deal with her post-decision cognitive dissonance. It is shown that the optimal effort level for a project can be affected by unchosen projects in her choice set, and the nature of the choice set-dependence is determined by the signal structure. Some comparative statics of choice set-dependence is also provided. Finally, based on the results, the optimal choice set design is also explored. This paper offers a simple framework to explain the experimental finding in psychology that people’s effort level for a project can be enhanced when the project is chosen by themselves rather than by others.