Failures of Contingent Thinking
Evan Piermont, Peio Zuazo-Garin

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.
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Taxonomy
TopicsExperimental Behavioral Economics Studies · Decision-Making and Behavioral Economics · Game Theory and Applications
