Bounded Cognition in Decision-Making

Trustees Of Boston University, Boston

Investigators

Abstract

At the heart of decision-making lie cognitive processes through which an understanding of the decision context is acquired and decision-relevant evaluations made. These processes can be cognitively costly and in particular may be bounded by limited cognitive resources. The PIs propose to analyze the behavior that might arise from such bounded cognition and to subsequently construct choice models. This would provide a path for possible applications of cognitive science in economics. Cognitive science is a multi-disciplinary field spanning psychology, neuroscience, artificial intelligence, linguistics, etc. and the proposal is a step in the direction of exploring the richness of its possible connections with economics. As a first step, the PIs propose to study an agent in an intertemporal choice context who evaluates any given consumption stream by drawing on limited cognitive resources to think about the consequences of the stream for his future selves. They posit that the optimality of the use of cognitive resources should be reflected behaviorally in greater patience when dealing with larger stakes. Moreover, the existence of capacity constraints should lead to non-separabilities in the evaluation of consumption streams. They will proceed to find a utility representation for such behaviors that is interpretable in terms of bounded cognition. The project makes use of the approach of axiomatic decision theory.