"A Cognitive Theory of Reasoning and Choice", by Nicola Gennaioli, accepted at Quarterly Journal of Economics

A Cognitive Theory of Reasoning and Choice

Pedro Bordalo, Nicola Gennaioli, Giacomo Lanzani, Andrei Shleifer

Abstract

We present a theory of decisions in which attention to the features of choice options is determined by the decision maker's categorization of the current choice problem in a set of problems she solved in the past. Categorization depends on goal-relevant as well as contextual problem-level features. The model yields systematic heterogeneity in attention and choice in a given problem based on different past experiences, rigidity of choices when categorization does not change despite new data, and discontinuous shifts when changes in bottom-up salient features cause re-categorization. The model unifies major puzzles and framing effects in riskless, statistical, and lottery choice based on heterogeneous and unstable mental representations.