Selective Sampling with Information-Storage Constraints

CERGE-EI Working Paper Series No. 621

44 Pages Posted: 25 Jul 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: July 1, 2018

Abstract

A decision-maker acquires payoff-relevant information until she reaches her storing capacity, at which point she either terminates the decision-making and chooses an action, or discards some information. By conditioning the probability of termination on the information collected, she controls the correlation between the payoff state and her terminal action. We provide an optimality condition for the emerging stochastic choice. The condition highlights the benefits of selective memory applied to the extracted signals. The constrained-optimal choice rule exhibits (i) confirmation bias, (ii) speed-accuracy complementarity, (iii) overweighting of rare events, and (iv) salience effect.

Keywords: bounded rationality, cognitive constraints, information processing, stochastic choice, confirmation bias, speed-accuracy complementarity, probability weighting, salience

JEL Classification: D03, D80, D81, D83, D89, D90

Suggested Citation

Jehiel, Philippe and Steiner, Jakub, Selective Sampling with Information-Storage Constraints (July 1, 2018). CERGE-EI Working Paper Series No. 621, Available at SSRN: https://ssrn.com/abstract=3208573 or http://dx.doi.org/10.2139/ssrn.3208573

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 )

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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
+420 605 286 947 (Phone)

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