On Second Thoughts, Selective Memory, and Resulting Behavioral Biases

42 Pages Posted: 2 Jan 2018

See all articles by Philippe Jehiel

Philippe Jehiel

University College London - Department of Economics; Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); Centre for Economic Policy Research (CEPR)

Jakub Steiner

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Date Written: December 2017

Abstract

A proposed model of information processing generates a prediction about the constrained-optimal stochastic choice that is robust to details of the feasible information structures. A decision-maker processes payoff-relevant information until she reaches her cognitive constraint, at which point she either terminates the decision-making and chooses an action, or restarts the process. By conditioning the probability of termination on the information collected, she controls the correlation between the payoff state and her terminal action. The constrained-optimal choice rule exhibits (i) confirmation bias, (ii) speed-accuracy complementarity, (iii) overweighting of rare events, and (iv) salience effect.

Suggested Citation

Jehiel, Philippe and Steiner, Jakub, On Second Thoughts, Selective Memory, and Resulting Behavioral Biases (December 2017). CEPR Discussion Paper No. DP12546, Available at SSRN: https://ssrn.com/abstract=3095596

Philippe Jehiel (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS) ( email )

28, rue des Saints-Peres
75007 Paris
France
+33 1 4458 2873 (Phone)
+33 1 4458 2880 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jakub Steiner

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

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