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Cognitive Limitations: Failures of Contingent Thinking

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  • Niederle, Muriel
  • Vespa, Emanuel

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

  • Niederle, Muriel & Vespa, Emanuel, 2023. "Cognitive Limitations: Failures of Contingent Thinking," University of California at San Diego, Economics Working Paper Series qt5q14p1np, Department of Economics, UC San Diego.
    • Handle: RePEc:cdl:ucsdec:qt5q14p1np
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    3. Peter Andre & Philipp Schirmer & Johannes Wohlfart, 2023. "Mental Models of the Stock Market," ECONtribute Discussion Papers Series 259, University of Bonn and University of Cologne, Germany.
    4. Andre, Peter, 2023. "Shallow meritocracy," SAFE Working Paper Series 405, Leibniz Institute for Financial Research SAFE.
    5. Shengwu Li, 2024. "Designing Simple Mechanisms," Papers 2403.18694, arXiv.org, revised Jul 2024.
    6. Peter Andre & Philipp Schirmer & Johannes Wohlfart, 2023. "Mental Models of the Stock Market," CESifo Working Paper Series 10691, CESifo.

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