Inertial Behavior and Generalized Partition

26 Pages Posted: 2 Jun 2016 Last revised: 3 Jun 2016

David Dillenberger

University of Pennsylvania - Department of Economics

Philipp Sadowski

Duke University - Department of Economics

Date Written: May 1, 2016

Abstract

We call behavior inertial if it does not react to the apparent arrival of relevant information. In a context where the precise information content of signals is subjective, we formulate an axiom that captures inertial behavior, and provide a representation that explains such behavior as that of a rational decision maker who perceives a particular type of information structure, which we call a generalized partition. We characterize the learning processes that can be described by a generalized partition. We proceed to assume that there is a true underlying information structure that may not be a generalized partition, and investigate different channels that may lead the decision maker to nonetheless perceive a generalized partition (and thus to display inertial behavior): A cognitive bias referred to as cognitive inertia and a bound on rationality which we term shortsightedness.

Keywords: Inertial behavior, subjective learning, generalized partition, uniform cover, cognitive inertia, shortsighted rationality

Suggested Citation

Dillenberger, David and Sadowski, Philipp, Inertial Behavior and Generalized Partition (May 1, 2016). Economic Research Initiatives at Duke (ERID) Working Paper No. 216. Available at SSRN: https://ssrn.com/abstract=2787996

David Dillenberger

University of Pennsylvania - Department of Economics ( email )

160 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
United States
215-898-1503 (Phone)

Philipp Sadowski (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1800 (Phone)

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