Selective Sampling with Information-Storage Constraints

Philippe Jehiel (1, 2, 3) , Jakub Steiner (4, 5)

1 PSE - Paris School of Economics
2 PJSE - Paris Jourdan Sciences Economiques
3 UCL - University College of London [London]
4 UZH - Universität Zürich [Zürich] = University of Zurich
5 CERGE-EI

A memoryless agent can acquire arbitrarily many signals. After each signal observation, she either terminates and chooses an action, or she discards her observation and draws a new signal. By conditioning the probability of termination on the information collected, she controls the correlation between the payoff state and her terminal action. We provide an optimality condition for the emerging stochastic choice. The condition highlights the benefits of selective memory applied to the extracted signals. Implications—obtained in simple examples—include (i) confirmation bias, (ii) speed-accuracy complementarity, (iii) overweighting of rare events, and (iv) salience effect.

Domaines: Economies et finances

Philippe Jehiel, Jakub Steiner. Selective Sampling with Information-Storage Constraints. The Economic Journal, 2020, 130 (630), pp.1753-1781. ⟨10.1093/ej/uez068⟩. ⟨halshs-03229986⟩