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The value of (bounded) memory in a changing world

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  • Daniel Monte
  • Maher Said

Abstract

This paper explores the value of memory in decision making in dynamic environments. We examine the decision problem faced by an agent with bounded memory who receives a sequence of signals from a partially observable Markov decision process. We characterize environments in which the optimal memory consists of only two states. In addition, we show that the marginal value of additional memory states need not be positive and may even be negative in the absence of free disposal. Copyright Springer-Verlag Berlin Heidelberg 2014

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  • Daniel Monte & Maher Said, 2014. "The value of (bounded) memory in a changing world," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(1), pages 59-82, May.
    • Handle: RePEc:spr:joecth:v:56:y:2014:i:1:p:59-82
    DOI: 10.1007/s00199-013-0771-1
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    Cited by:

    1. Chatterjee, Kalyan & Guryev, Konstantin & Hu, Tai-Wei, 2022. "Bounded memory in a changing world: Biases in behaviour and belief," Journal of Economic Theory, Elsevier, vol. 206(C).
    2. Carlos Alós-Ferrer & Nick Netzer, 2015. "Robust stochastic stability," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(1), pages 31-57, January.
    3. Leung, B. T. K., 2020. "Learning in a Small/Big World," Cambridge Working Papers in Economics 2085, Faculty of Economics, University of Cambridge.
    4. Benson Tsz Kin Leung, 2020. "Learning in a Small/Big World," Papers 2009.11917, arXiv.org, revised Mar 2023.
    5. Mueller-Frank, Manuel, 2015. "Reaching Consensus in Social Networks," IESE Research Papers D/1116, IESE Business School.
    6. Tai-Wei Hu, 2023. "Forgetful updating and stubborn decision-makers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(3), pages 781-802, April.

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    More about this item

    Keywords

    Bounded memory; Dynamic decision making; Partially observable Markov decision process; C61; D81; D83;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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