IDEAS home Printed from https://ideas.repec.org/p/qsh/wpaper/509946.html
   My bibliography  Save this paper

Memory, Attention, and Choice

Author

Listed:
  • Pedro Bordalo
  • Nicola Gennaioli
  • Andrei Shleifer

Abstract

We present a theory in which the choice set cues a consumer to recall a norm, and surprise relative to the norm shapes his attention and choice. We model memory based on Kahana (2012), where past experiences that are more recent or more similar to the cue are recalled and crowd out others. We model surprise relative to the norm using our salience model of attention and choice. The model predicts unstable and inconsistent behavior in new contexts, because these are evaluated relative to past norms. Under some conditions, repeated experience causes norms to adapt, inducing stable ? sometimes rational ?behavior across different contexts. We test some of the model?s predictions using an expanded data set on rental decisions of movers between US cities first analyzed by Simonsohn and Loewenstein (2006).

Suggested Citation

  • Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2017. "Memory, Attention, and Choice," Working Paper 509946, Harvard University OpenScholar.
    • Handle: RePEc:qsh:wpaper:509946
    as

    Download full text from publisher

    File URL: http://scholar.harvard.edu/shleifer/node/509946
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Joshua Schwartzstein, 2014. "Selective Attention And Learning," Journal of the European Economic Association, European Economic Association, vol. 12(6), pages 1423-1452, December.
    2. Koszegi, Botond & Rabin, Matthew, 2004. "A Model of Reference-Dependent Preferences," Department of Economics, Working Paper Series qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. Piccione, Michele & Rubinstein, Ariel, 1997. "On the Interpretation of Decision Problems with Imperfect Recall," Games and Economic Behavior, Elsevier, vol. 20(1), pages 3-24, July.
    4. Itzhak Gilboa & David Schmeidler, 1995. "Case-Based Decision Theory," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 605-639.
    5. Jesse M. Shapiro, 2013. "Fungibility and Consumer Choice: Evidence from Commodity Price Shocks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(4), pages 1449-1498.
    6. Xavier Gabaix, 2014. "A Sparsity-Based Model of Bounded Rationality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1661-1710.
    7. Ulrike Malmendier & Stefan Nagel, 2016. "Learning from Inflation Experiences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(1), pages 53-87.
    8. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    9. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1133-1165.
    10. Nicola Gennaioli & Andrei Shleifer, 2010. "What Comes to Mind," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(4), pages 1399-1433.
    11. Andrea Wilson, 2014. "Bounded Memory and Biases in Information Processing," Econometrica, Econometric Society, vol. 82, pages 2257-2294, November.
    12. Stefano DellaVigna & Attila Lindner & Balázs Reizer & Johannes F. Schmieder, 2017. "Reference-Dependent Job Search: Evidence from Hungary," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1969-2018.
    13. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1233-1260.
    14. James Dow, 1991. "Search Decisions with Limited Memory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(1), pages 1-14.
    15. Uri Simonsohn & George Loewenstein, 2006. "Mistake #37: The Effect of Previously Encountered Prices on Current Housing Demand," Economic Journal, Royal Economic Society, vol. 116(508), pages 175-199, January.
    16. Gennaioli, Nicola & Shleifer, Andrei & Vishny, Robert, 2012. "Neglected risks, financial innovation, and financial fragility," Journal of Financial Economics, Elsevier, vol. 104(3), pages 452-468.
    17. Alexandre Mas, 2006. "Pay, Reference Points, and Police Performance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(3), pages 783-821.
    18. Uri Simonsohn, 2006. "New Yorkers Commute More Everywhere: Contrast Effects in the Field," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 1-9, February.
    19. Richard H. Thaler, 2008. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 27(1), pages 15-25, 01-02.
    20. Ulrike Malmendier & Stefan Nagel, 2011. "Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 373-416.
    21. Sendhil Mullainathan, 2002. "A Memory-Based Model of Bounded Rationality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 735-774.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen Lian & Yueran Ma & Carmen Wang, 2019. "Low Interest Rates and Risk-Taking: Evidence from Individual Investment Decisions," The Review of Financial Studies, Society for Financial Studies, vol. 32(6), pages 2107-2148.
    2. Edika Quispe-Torreblanca & David Hume & John Gathergood & George Loewenstein & Neil Stewart, 2023. "At the Top of the Mind: Peak Prices and the Disposition Effect," Discussion Papers 2023-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    3. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2013. "Salience and Consumer Choice," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 803-843.
    4. Genakos, Christos & Roumanias, Costas & Valletti, Tommaso, 2023. "Is having an expert “friend” enough? An analysis of consumer switching behavior in mobile telephony," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 359-372.
    5. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    6. Gagnon-Bartsch, Tristan & Bushong, Benjamin, 2022. "Learning with misattribution of reference dependence," Journal of Economic Theory, Elsevier, vol. 203(C).
    7. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2012. "Salience Theory of Choice Under Risk," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(3), pages 1243-1285.
    8. Ahrens, Steffen & Pirschel, Inske & Snower, Dennis J., 2017. "A theory of price adjustment under loss aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 78-95.
    9. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.
    10. Adloff, Susann, 2021. "Adapting to Climate Change: Threat Experience, Cognition and Protection Motivation," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242400, Verein für Socialpolitik / German Economic Association.
    11. Zaunbrecher, Henrik & Gagnon, Nickolas, 2020. "Declining Wages Increase Selfish Redistribution in an Environment with Fixed Income Inequality," Research Memorandum 023, Maastricht University, Graduate School of Business and Economics (GSBE).
    12. Samuel M. Hartzmark & Kelly Shue, 2017. "A Tough Act to Follow: Contrast Effects In Financial Markets," NBER Working Papers 23883, National Bureau of Economic Research, Inc.
    13. Karle, Heiko & Schumacher, Heiner & Vølund, Rune, 2023. "Consumer loss aversion and scale-dependent psychological switching costs," Games and Economic Behavior, Elsevier, vol. 138(C), pages 214-237.
    14. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    15. Nicola Gennaioli & Alberto Martin & Stefano Rossi, 2014. "Sovereign Default, Domestic Banks, and Financial Institutions," Journal of Finance, American Finance Association, vol. 69(2), pages 819-866, April.
    16. Scott Duke Kominers & Xiaosheng Mu & Alexander Peysakhovich, 2019. "Paying for Attention: The Impact of Information Processing Costs on Bayesian Inference," Working Papers 2019-31, Princeton University. Economics Department..
    17. Cosaert, Sam & Lefebvre, Mathieu & Martin, Ludivine, 2022. "Are preferences for work reference dependent or time nonseparable? New experimental evidence," European Economic Review, Elsevier, vol. 148(C).
    18. Anbarci, Nejat & Arin, K. Peren & Kuhlenkasper, Torben & Zenker, Christina, 2018. "Revisiting loss aversion: Evidence from professional tennis," Journal of Economic Behavior & Organization, Elsevier, vol. 153(C), pages 1-18.
    19. Charité, Jimmy & Fisman, Raymond & Kuziemko, Ilyana & Zhang, Kewei, 2022. "Reference points and redistributive preferences: Experimental evidence," Journal of Public Economics, Elsevier, vol. 216(C).
    20. Nickolas Gagnon & Riccardo D. Saulle & Henrik W. Zaunbrecher, 2021. "Decreasing Incomes Increase Selfishness," Papers 2107.02888, arXiv.org.

    More about this item

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:qsh:wpaper:509946. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Richard Brandon (email available below). General contact details of provider: https://edirc.repec.org/data/cbrssus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.