Economics Seminar (2020-03)

Topic: Why is consciousness so big and the unconscious so small?

The role of attention in decision making

Speaker: Chew Soo Hong, Southwestern University of Finance and Economics (SWUFE)

Time: April 7, Tuesday. 14:30p.m. - 16:00p.m.

Location: Microsoft Teams Online Conference Room

Abstract:

Traditionally, researchers in economics and business assume that people are fully conscious and attentive when decisions are made. Since the Allais paradox (1953), the Ellsberg paradox (1961), and Kahneman and Tversky’s theory of framing (1979, 1981), there has been an increasing realization of the influence of limited attention in decision making. In his 1954 classic laying the foundation of subjective expected utility, Savage explained how he corrected a choice error made over lunch with Allais using the sure-thing principle. Subsequently, Raiffa (1961) described how he should have employed a fair coin to render him ambiguity neutral when Ellsberg presented him with the two-urns problem. While these two illustrious cases illustrate the influence of less than full attention, Kahneman and Tversky (1979, 1981) showed directly the effects of limited attention on choice through framing – eliciting seemingly inconsistent choices using different equivalent descriptions of the same situation depending on how specific aspects are highlighted.

Recent advances in neuroscience point to the nature of attention as resulting from an active inference process constrained by the “miserly brain” (Friston, 2010; Hohwy, 2013), constantly seeking to optimize its metabolic load by minimizing energy usage – a state of low entropy – implemented by an ongoing partially (un)conscious attentional process which is sensitive to changes in the physical environment of a choice situation, e.g., sound, color, temperature, humidity, and pollution. 

We offer an attention-dependent utility model based on Chew (1983), involving a stable utility function and an unstable attention function, which delivers decision weights in a way resembling the divisive normalization form in the miserly-brain literature (see, e.g., Glimcher,2015). Applying a symmetry principle, we axiomatize the attention-dependent decision weights to accommodate the rapidly changing nature of the attentional process. As illustrated in the above schematic, this model predicts stable preference in conjunction with high attentiveness (often obtains when outcomes are significant with little unconscious influence) and unstable or stochastic choice in conjunction with low attentiveness (may arise from inconsequential lotteries or adistraction-rich environment with significant unconscious influence). The advantage of incorporating attention in utility modelling is demonstrated in terms of how the model can account for a considerable range of decision-making anomalies with shared roots in limited attention and at the same time accommodate behaviour normally associated with the idea of ‘rational’ choice under full attention and consciousness.

Introduction:

Chew Soo Hong is a Professor at the Southwestern University of Finance and Economics (SWUFE). He received his Ph.D. in interdisciplinary studies from the University of British Columbia and has previously taught at the Hong Kong University of Science and Technology (HKUST), University of California, Irvine, Johns Hopkins University and University of Arizona. He is among the pioneers in axiomatic non-expected utility models and is a fellow of the Econometric Society which awarded him the Leonard J. Savage thesis prize and was co-director of NUS' Lab for Behavioral x Biological Economics and the Social Sciences which aims to bring together genomics, neuroscience, decision theory, and behavioral and experimental economics to seek a deeper understanding of decision making at the neural and molecular levels. Chew has published in well-regarded journals in economics such as Econometrica, Review of Economic Studies, Journal of the European Economic Association, and Journal of Economic Theory as well as more biology-oriented ones including Neuron, Proceedings of the Royal Society B: Biological Sciences, and Neuroimage.

Your participation is warmly welcomed.