26 Pages Posted: 2 Jun 2016 Last revised: 3 Jun 2016
Date Written: May 1, 2016
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: 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