Memory and Anticipation

34 Pages Posted: 2 Apr 2005

See all articles by B. Douglas Bernheim

B. Douglas Bernheim

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Raphael Thomadsen

Olin School - Washington University in St. Louis

Abstract

The introduction of memory imperfections into models of economic decision making creates a natural role for anticipatory emotions. Their combination has striking behavioural implications. The paper first shows that agents can rationally select apparently dominated strategies. We consider Newcomb's Paradox and the Prisoners' Dilemma. We provide a resolution for Newcomb's Paradox and argue it requires the decision maker to ascribe only a tiny weight to anticipatory emotions. For some ranges of parameters, it is possible to obtain cooperation in the Prisoners' Dilemma with probability arbitrarily close to unity. The second half of the paper provides a theory of reminders.

Suggested Citation

Bernheim, B. Douglas and Thomadsen, Raphael, Memory and Anticipation. Economic Journal, Vol. 115, No. 503, pp. 271-304, April 2005. Available at SSRN: https://ssrn.com/abstract=696964

B. Douglas Bernheim (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-8732 (Phone)
650-725-5702 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Raphael Thomadsen

Olin School - Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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