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Limited Cognitive Ability and Selective Information Processing

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  • Leung, B. T. K.

Abstract

This paper studies the information processing behavior of a decision maker (DM) who can only process a subset of all the information he receives: before taking an action, the DM receives sequentially a number of signals and decides whether to process or ignore each of them as it is received. The model generates an information processing behavior consistent with that documented in the psychological literature: first, the DM chooses to process signals that are strong; second, his processing strategy exhibits confirmation bias if he has a strong prior belief; third, he tends to process signals that suggest favorable outcomes (wishful thinking). As an application I analyze how the Internet and the induced change in information availability affects the processing behavior of the DM. I show that providing more/better information to the DM could strengthen his confirming bias.

Suggested Citation

  • Leung, B. T. K., 2018. "Limited Cognitive Ability and Selective Information Processing," Cambridge Working Papers in Economics 1891, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1891
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    References listed on IDEAS

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    Cited by:

    1. Goette, L. & Han, H. J. & Leung, B. T. K., 2020. "Information Overload and Confirmation Bias," Cambridge Working Papers in Economics 2019, Faculty of Economics, University of Cambridge.

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    Keywords

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    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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