Memory and Representativeness

TL;DR: In this paper, a model of credit cycles arising from diagnostic expectations is presented, in which agents over-estimate future outcomes that have become more likely in light of incoming data.

TL;DR: The authors present a theory of consumer choice that combines elements of selective recall and of allocation of attention distorted by salience. But their model does not explain how consumers under or overreact to information, depending on what draws their attention.

TL;DR: This article designed a theory-driven experiment, in which participants observe signals about hypothetical companies, and found that participants asymmetrically remember those past signals that get cued by the current context, beliefs systematically overreact.

TL;DR: The authors survey the recent literature with a focus on the inflation expectations of households and provide evidence of systematic differences by gender, income, education, and race, highlighting the role of individuals' exposure to price signals in their daily lives.

Abstract: This article described three heuristics that are employed in making judgements under uncertainty: (i) representativeness, which is usually employed when people are asked to judge the probability that an object or event A belongs to class or process B; (ii) availability of instances or scenarios, which is often employed when people are asked to assess the frequency of a class or the plausibility of a particular development; and (iii) adjustment from an anchor, which is usually employed in numerical prediction when a relevant value is available. These heuristics are highly economical and usually effective, but they lead to systematic and predictable errors. A better understanding of these heuristics and of the biases to which they lead could improve judgements and decisions in situations of uncertainty.

TL;DR: Prospect theory as mentioned in this paper is an alternative to the classical utility theory of choice, and has been used to explain many complex, real-world puzzles, such as the principles of legal compensation, the equity premium puzzle in financial markets, and the number of hours that New York cab drivers choose to drive on rainy days.

TL;DR: The metric and dimensional assumptions that underlie the geometric representation of similarity are questioned on both theoretical and empirical grounds and a set of qualitative assumptions are shown to imply the contrast model, which expresses the similarity between objects as a linear combination of the measures of their common and distinctive features.

TL;DR: The revised model differs from the old principally in focussing attention on the processes of integrating information, rather than on the isolation of the subsystems, which provides a better basis for tackling the more complex aspects of executive control in working memory.