Search, Memory, and Choice Error: An Experiment

Multiple attribute search is a central feature of economic life: we consider much more than price when purchasing a home, and more than wage when choosing a job. An experiment is conducted in order to explore the effects of cognitive limitations on choice in these rich settings, in accordance with the predictions of a new model of search memory load. In each task, subjects are made to search the same information in one of two orders, which differ in predicted memory load. Despite standard models of choice treating such variations in order of acquisition as irrelevant, lower predicted memory load search orders are found to lead to substantially fewer choice errors. An implication of the result for search behavior, more generally, is that in order to reduce memory load (thus choice error) a limited memory searcher ought to deviate from the search path of an unlimited memory searcher in predictable ways-a mechanism that can explain the systematic deviations from optimal sequential search that have recently been discovered in peoples' behavior. Further, as cognitive load is induced endogenously (within the task), and found to affect choice behavior, this result contributes to the cognitive load literature (in which load is induced exogenously), as well as the cognitive ability literature (in which cognitive ability is measured in a separate task). In addition, while the information overload literature has focused on the detrimental effects of the quantity of information on choice, this result suggests that, holding quantity constant, the order that information is observed in is an essential determinant of choice failure.Financial support from the Spanish Ministerio de Ciencia y Tecnología and Feder Funds (SEJ-2007-62656) and the Spanish Ministry of Economics and Competition (ECO2012-34928, http://www.biodiversa.org/102) is gratefully acknowledged

Search with multiple attributes: Theory and empirics

Multiple attribute search is a central feature of economic life: we consider much more than price when purchasing a home, and more than wage when choosing a job. Nevertheless, while single attribute search problems have been studied extensively, little is known about optimal search in multiple attribute environments. I introduce a partial characterization of optimal sequential search in a problem with multiple searchable attributes and alternatives, no order restrictions on search, and full recall. Upon applying the partial rational benchmark to a rich dataset I find that subjects systematically deviate from optimal sequential search by: (1) searching too deeply within alternatives and (2) switching too adjacently between alternatives. I explore how these deviations affect payoffs, and discuss why they may be boundedly rational.Financial support from the Spanish Ministerio de Ciencia y Tecnología and Feder Funds (SEJ-2007-62656), and the Spanish Ministry of Economics and Competition (ECO2012-34928) is gratefully acknowledged

A Bridge from Monty Hall to the Hot Hand: The Principle of Restricted Choice

We show how classic conditional probability puzzles, such as the Monty Hall problem, are intimately related to the recently discovered hot hand selection bias. We explain the connection by way of the principle of restricted choice, an intuitive inferential rule from the card game bridge, which we show is naturally quantified as the updating factor in the odds form of Bayes's rule. We illustrate how, just as the experimental subject fails to use available information to update correctly when choosing a door in the Monty Hall problem, researchers may neglect analogous information when designing experiments, analyzing data, and interpreting results.Financial support from Bocconi University, Bocconi Experimental Laboratory for the Social Sciences (BELSS), and the Spanish Ministry of Economics and Competitiveness (Project ECO2015-65820-P) is gratefully acknowledged. We also gratefully acknowledge Generalitat Valenciana (Research Projects Grupos 3/086 and PROMETEO/2013/037)

Surprised by the Hot Hand Fallacy? A Truth in the Law of Small Numbers

We prove that a subtle but substantial bias exists in a common measure of the conditional dependence of present outcomes on streaks of past outcomes in sequential data. The magnitude of this streak selection bias generally decreases as the sequence gets longer, but increases in streak length, and remains substantial for a range of sequence lengths often used in empirical work. We observe that the canonical study in the influential hot hand fallacy literature, along with replications, are vulnerable to the bias. Upon correcting for the bias, we find that the longstanding conclusions of the canonical study are reversed.Financial support from the Department of Decision Sciences at Bocconi University, and the Spanish Ministries of Education and Science and Economics and Competitiveness (ECO2015-65820-P) and Generalitat Valenciana (Research Projects Gruposo3/086 and PROMETEO/2013/037) is gratefully acknowledged

Response functions

Imagine that John must choose between two uncertain payoff distributions, knowing that the set of possible payoffs is the same for both, but nothing about the shapes of the distributions. In the first period he chooses either alternative and experiences a payoff as a result of his choice. Given this experienced payoff, in the second period he decides whether to choose the same alternative again, or switch. We model John’s second period choice with a response function, i.e., a mapping from obtained payoffs to the probability of choosing the same alternative in the second period. We first provide results on (i) how the shape of the response function affects both expected payoffs and exposure to risk, and (ii) what standard models of choice under uncertainty would predict about the shape of the response function. We then run an experiment to elicit subjects’ response functions, empirically characterize the heterogeneity across subjects with a mixture model, and illustrate how payoffs vary across response function types. Finally, we use our theoretical results, along with additional information that we collected from subjects, to interpret their response functions.The Spanish Ministry of Sciences and Technology (SEJ2007-62656), the Spanish Ministry of Economics and Competition (ECO2012-34928), and the University of Queensland Start-up Grant

Is it a fallacy to believe in the hot hand in the NBA three-point contest?

The NBA Three-Point Contest has been considered an ideal setting to study the hot hand, as it showcases the elite professional shooters that hot hand beliefs are typically directed towards, but in an environment that eliminates many of the confounds present in game action. We collect 34 years of NBA Three-Point Contest television broadcast data (1986–2020), apply a statistical approach that improves on those of previous studies, and find considerable evidence of hot hand shooting in and across individuals. Our results support fans’ and experts’ widely held belief in the hot hand among NBA shooters.Financial support from the Department of Decision Sciences at Bocconi University and the Spanish Ministry of Science and Innovation (Grant PID2019-108193GB-I00) is gratefully acknowledged

Essays in decision making under cognitive load

My first chapter tests several hypotheses of information overload in an experiment where subjects estimate security prices under variable signal loads. Peter Katuscak and I find that as information load increases subjects eventually stop assimilating further information, and they shift increasing weight towards the most salient information. This combination of results leaves information receivers vulnerable to strategic manipulation by senders. My second chapter builds on the multiple attribute search experiment, and analysis, of Gabaix and Laibson (2006) in four ways; I provide a basic description of subjects' search behavior, study behavior on the individual subject level, provide a partial characterization of optimality, and compare subjects' behavior to my partial characterization of optimality. I find that subjects' search behavior violates optimality at high rates, but is also highly systematic, that 98% of all search behavior can be explained by four simple, exclusive, types, and that subjects often search conditionally too deeply within alternatives and exhibit strong adjacency biases in switching between alternatives. I also observe unambiguous evidence of memory failure by subjects. My third chapter tests the hypothesis that working memory limits can explain subjects' main systematic deviations from optimality, as well as other fact patterns in search, in the Gabaix and Laibson (2006) dataset. First I show that the most popular type of search pattern by subjects also requires the unique minimum amount of working memory load. Second, I show that more systematic search sequences require less working memory load than more "random- looking" sequences. These theoretical results strongly suggest that a simple model of search in which working memory is limited, but subjects otherwise search optimally, can explain Gabaix and Laibson's subjects' main systematic deviations from optimality as well as other fact patterns from the datase

Relative frequency of correct choices as search order and matrix size vary.

<p>Relative frequency of correct choices as search order and matrix size vary.</p