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Limited cognitive ability and selective information processing

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  • Leung, Benson Tsz Kin

Abstract

This paper studies the information processing behavior of a decision maker (DM) who can only process a subset of all information he receives: before taking an action, the DM receives sequentially a number of signals and decides whether to process or ignore each of them as it is received. The model generates an information processing behavior consistent with that documented in the psychological literature: first, the DM chooses to process signals that are strong; second, his processing strategy exhibits confirmation bias if he has a strong prior belief; third, he tends to process signals that suggest favorable outcomes (wishful thinking). As an application I analyze how the Internet and the induced change in information availability affects the processing behavior of the DM. I show that providing more/better information to the DM could strengthen his confirming bias.

Suggested Citation

  • Leung, Benson Tsz Kin, 2020. "Limited cognitive ability and selective information processing," Games and Economic Behavior, Elsevier, vol. 120(C), pages 345-369.
    • Handle: RePEc:eee:gamebe:v:120:y:2020:i:c:p:345-369
    DOI: 10.1016/j.geb.2020.01.005
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    Cited by:

    1. Leung, B. T. K., 2020. "Learning in a Small/Big World," Cambridge Working Papers in Economics 2085, Faculty of Economics, University of Cambridge.
    2. Benson Tsz Kin Leung, 2020. "Learning in a Small/Big World," Papers 2009.11917, arXiv.org, revised Mar 2023.

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    More about this item

    Keywords

    Limited ability; Information overload; Information avoidance; Confirmation bias; Wishful thinking; Polarization;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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