Biases in prospective learning and dynamic choice – PROSPECT

Decades of empirical research in behavioral economics and psychology have generated abundant evidence showing that individuals’ decisions in economically relevant situations often deviate systematically from the paradigm of perfect rationality. Two categories of anomalies have garnered particular attention. The first category groups belief biases and learning distortions, primarily focusing on biases in retrospective learning, that is, distortions in the process through which individuals interpret and use a piece of information that has already been revealed. The second category documents anomalies in time preferences and discounting behavior, with a specific emphasis on the phenomenon of time inconsistency and self-control issues.

The purpose of this project is to redirect attention toward a facet of our cognitive life that is of paramount importance in dynamic decision problems yet has received little attention from economists thus far: the forecasting of the usefulness of a piece of information before its revelation. This type of forecast conditions important decisions, such as how much information to acquire, how much to experiment, or how much to pay attention to information sources.

This project aims to evaluate individuals’ ability for prospective reasoning in economically relevant situations. Our objective is to provide evidence for the following questions: Do people experiment as much as they should in their daily lives? Do they gather enough information before making important life decisions, such as such as college applications, financial investments, medical decisions, or consumption choices? Or do they miss opportunities to make better choices because they fail to appreciate the value of active learning and experimentation?