Bounded Memory and Biases in Information Processing. Issue 6 (November 2014)

• Record Type: Journal Article
• Authors: Wilson, Andrea
• Is Part Of: Econometrica. Volume 82:Issue 6(2014:Nov.)
• Page Start: 2257
• Page End: 2294
• Publication Date: 2014-11
• Subjects: Econometrics -- Periodicals; Economics, Mathematical -- Periodicals; Economics -- Periodicals; Économétrie -- Périodiques; Mathématiques économiques -- Périodiques; Économie politique -- Périodiques; 330.05
• DOI: 10.3982/ECTA12188
• Languages: English
• ISSNs: 0012-9682

Abstract

<abstract abstract-type="main"> <title> <x xml:space="preserve">Abstract</x> </title> <p>Before choosing among two actions with state‐dependent payoffs, a Bayesian decision‐maker with a finite memory sees a sequence of informative signals, ending each period with fixed chance. He summarizes information observed with a finite‐state automaton.</p> <p>I characterize the optimal protocol as an equilibrium of a dynamic game of imperfect recall; a new player runs each memory state each period. Players act as if maximizing expected payoffs in a common finite action decision problem. I characterize equilibrium play with many multinomial signals. The optimal protocol rationalizes many behavioral phenomena, like "stickiness, " salience, confirmation bias, and belief polarization.</p> </abstract>