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Cost-Benefit Analysis in Reasoning

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  • Larbi Alaoui
  • Antonio Penta

Abstract

When an individual thinks about a problem, his decision to reason further may involve a tradeoff between cognitive costs and a notion of value. But it is not obvious that this is always the case, and the value of reasoning is not well-defined. This paper analyzes the primitive properties of the reasoning process that must hold for the decision to stop thinking to be represented by a cost-benefit analysis. We find that the properties that characterize the cost-benefit representation are weak and intuitive, suggesting that such a representation is justified for a large class of problems. We then provide additional properties that give more structure to the value of reasoning function, including ‘value of information’ and ‘maximum gain’ representations. We show how our model applies to a variety of settings, including contexts involving sequential heuristics in choice, response time, reasoning in games and research. Our model can also be used to understand economically relevant patterns of behavior for which the cost-benefit approach does not seem to hold. These include choking under pressure and (over)thinking aversion.

Suggested Citation

  • Larbi Alaoui & Antonio Penta, 2018. "Cost-Benefit Analysis in Reasoning," Working Papers 1062, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1062
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    References listed on IDEAS

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    Cited by:

    1. Alaoui, Larbi & Janezic, Katharina A. & Penta, Antonio, 2020. "Reasoning about others' reasoning," Journal of Economic Theory, Elsevier, vol. 189(C).
    2. Larbi Alaoui & Antonio Penta, 2018. "Cost-benefit analysis in reasoning," Economics Working Papers 1621, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Adriani, Fabrizio & Sonderegger, Silvia, 2020. "Optimal similarity judgments in intertemporal choice (and beyond)," Journal of Economic Theory, Elsevier, vol. 190(C).
    4. Tsakas, Elias, 2018. "Robust scoring rules," Research Memorandum 023, Maastricht University, Graduate School of Business and Economics (GSBE).
    5. Olivier Gossner & Jakub Steiner, 2016. "Optimal Illusion of Control and Related Perception Biases," Edinburgh School of Economics Discussion Paper Series 276, Edinburgh School of Economics, University of Edinburgh.
    6. Carlos Alós-Ferrer & Johannes Buckenmaier, 2021. "Cognitive sophistication and deliberation times," Experimental Economics, Springer;Economic Science Association, vol. 24(2), pages 558-592, June.
    7. Marianna Belloc & Ennio Bilancini & Leonardo Boncinelli & Simone D'Alessandro, 2017. "A Social Heuristics Hypothesis for the Stag Hunt: Fast- and Slow-Thinking Hunters in the Lab," CESifo Working Paper Series 6824, CESifo.
    8. Bilancini, Ennio & Boncinelli, Leonardo, 2018. "Rational attitude change by reference cues when information elaboration requires effort," Journal of Economic Psychology, Elsevier, vol. 65(C), pages 90-107.
    9. Gossner, Olivier & Steiner, Jakub, 2018. "On the cost of misperception: General results and behavioral applications," Journal of Economic Theory, Elsevier, vol. 177(C), pages 816-847.

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    More about this item

    Keywords

    cognition and incentives; Choice theory; reasoning; fact-free learning; sequential heuristics;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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