Inertial Behavior and Generalized Partition

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2016-05-01

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Abstract

We call behavior inertial if it does not react to the apparent arrival of relevant information. In a context where the precise information content of signals is subjective, we formulate an axiom that captures inertial behavior, and provide a representation that explains such behavior as that of a rational decision maker who perceives a particular type of information structure, which we call a generalized partition. We characterize the learning processes that can be described by a generalized partition. We proceed to assume that there is a true underlying information structure that may not be a generalized partition, and investigate different channels that may lead the decision maker to nonetheless perceive a generalized partition (and thus to display inertial behavior): A cognitive bias referred to as cognitive inertia and a bound on rationality which we term shortsightedness.

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Scholars@Duke

Sadowski

Philipp Sadowski

Associate Professor of Economics

Philipp Sadowski's work focuses on microeconomic theory, decision theory and behavioral economics. A central research interest is to better understand the interaction between observable economic behavior and the often not directly observable formation of beliefs. Topics include subjective learning, rational inattention, changing tastes, and other-regarding motives such as shame and magical thinking. Philipp's research has been published in leading journals, presented internationally, and supported by the National Science Foundation.


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