Two essays on costly contemplation and efficient resource allocation subject to priorities

In the first essay, we study preferences over opportunity sets. Such preferences are monotone if every opportunity set is at least as good as its subsets. We prove a representation theorem for monotone preferences. The representation suggests that the decision maker optimally contemplates his mood before making his ultimate choice from his opportunity set. The result gives a subjective foundation for a model of costly contemplation. We show that our model reduces to that of Kreps (1979) when contemplation is costless and to the standard rational model if the agent has no preference for flexibility. We apply our model to the analysis of experimental evidence on the endowment effect and the diversification bias and show how both of these phenomena can be interpreted as consequences of costly contemplation.; In the second essay, we study the problem of assigning indivisible objects to a group of agents subject to predetermined priorities. An exogenous priority structure determines a strict priority ranking of the agents for each object type. A rule systematically assigns the goods to the agents based on their preferences. A priority is violated if an agent prefers the assignment of a lower priority agent to his own. A rule adapts to the structure if it never violates the specified priorities. By Gale-Shapley (1962), there is a best rule: the unique rule that adapts to the structure and is Pareto superior to any other adapted rule. We show that acyclicity of the priority structure is sufficient for efficiency, group strategyproofness, and consistency of the best rule as well as necessary for each of these conditions separately. We provide alternative characterizations of acyclicity which help us introduce an algorithm that demonstrates the sequential nature of efficient adapted rules.