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Cognitive Limitations: Failures of Contingent Thinking

Author

Listed:
  • Muriel Niederle

    (Department of Economics, Stanford University, Stanford, California, USA)

  • Emanuel Vespa

    (Department of Economics, University of California, San Diego, California, USA)

Abstract

In recent years, experiments have documented a new mechanism that leads to failures of profit maximization: the failure of contingent thinking (FCT). This article summarizes key experimental findings, clarifies what constitutes an FCT, and outlines how FCTs can be tested in other environments. Subsequently, we relate FCTs to recent theoretical work on cognitive limitations in behavioral economics. Finally, we connect FCTs to suboptimal behavior documented in applied environments.

Suggested Citation

  • Muriel Niederle & Emanuel Vespa, 2023. "Cognitive Limitations: Failures of Contingent Thinking," Annual Review of Economics, Annual Reviews, vol. 15(1), pages 307-328, September.
    • Handle: RePEc:anr:reveco:v:15:y:2023:p:307-328
    DOI: 10.1146/annurev-economics-091622-124733
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    Cited by:

    1. Peter Andre & Philipp Schirmer & Johannes Wohlfart, 2024. "Mental Models of the Stock Market," CEBI working paper series 23-07, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).

    More about this item

    Keywords

    behavioral theory; experiments; cognitive economics; cognitive limitations; sure-thing principle;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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