Failures of Contingent Thinking

TL;DR

This paper introduces a behavioral model of contingent thinking, highlighting how belief updating and realization of flaws influence decision-making, and clarifies the cognitive demands of contingent versus obvious dominance.

Contribution

It provides a formal definition of perceived implication and belief updating in contingent thinking, including a novel realization-based updating process.

Findings

Reducing uncertainty enhances contingent thinking.

Realization of flaws alters belief updating.

Contingent thinking is more cognitively demanding than obvious dominance.

Abstract

We present a behavioral definition of an agent's perceived implication that uniquely identifies a subjective state-space representing her view of a decision problem, and which may differ from the modeler's. By examining belief updating within this model, we formalize the recent empirical consensus that reducing uncertainty improves contingent thinking, and propose a novel form of updating corresponding to the agent 'realizing' a flaw in her own thinking. Finally, we clarify the sense in which contingent thinking makes state-bystate dominance more cognitively demanding than obvious dominance.