Time: 2:00 pm – 3:30 pm

Date: 14th of December 2017

Place: Room 3001

Jakub STEINER (CERGE-EI) – “On Second Thoughts, Selective Memory, and Resulting Behavioral Biases” with Philippe JEHIEL

Abstract: A proposed model of information processing generates a prediction about the constrainedoptimal stochastic choice that is robust to details of the feasible information structures. A decision-maker processes payo_-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, the decision-maker controls the correlation between the payo_ state and her terminal action. The constrained-optimal stochastic choice rule satis_es a second-thought-free condition: Given her information, the agent at the end of her decision-making is indi_erent between terminating and restarting it. This condition is robust in that it refers only to the correlation between the state and the terminal action, and not to the primitive information structure. The constrained-optimal choice rule exhibits (i) con_rmation bias, (ii) speed-accuracy complementarity, (iii) overweighting of rare events, and (iv) salience e_ect: (i) Decision-making is likely to terminate at an information set supporting a choice that is attractive a priori. (ii) A delayed response indicates second thoughts and a surprising state, in which mistakes occur often. (iii) A constrained-optimal belief formation process pays great attention to a priori rare events such as ight accidents, since such surprising events are more informative than expected events. (iv) In perceptual tasks, the constrained-optimal perception discriminates in favor of distinct states that are easily distinguished from other states.