Robert Akerlof, Richard Holden, and Hongyi Li*
Abstract
People may have all the information needed to draw a conclusion yet—in contrast to standard economic models—they fail to connect the dots. For example, when staring at a picture, someone might be able to identify the color of each “pixel” and yet fail to see what the picture represents (e.g. “it’s a smiley face”). We formalize this idea. An agent’s task is to learn about a picture’s features. Initially, they know the color of each pixel, but not features of larger regions of the picture—thus, they cannot discern what the picture depicts. They add to knowledge by loading existing knowledge into working memory and deducing new features. Importantly, the agent has limited working memory, which bounds their ability to draw conclusions. The model captures many important phenomena, such as multi-stable perception, choice overload, and satisficing. It provides a useful conceptualization of narratives as “big-picture statements.” We discuss several potential applications, including to the politics of persuasion.
The model captures many important phenomena, such as multi-stable perception, choice overload, and satisficing. It provides a useful conceptualization of narratives as “big-picture statements.”
*Akerlof: UNSW Business School and University of Warwick, r.akerlof@unsw.edu.au. Holden: UNSW Business School, richard.holden@unsw.edu.au. Li: UNSW Business School, hongyi@hongyi.li. We are grateful to Rachel Kranton, Raghav Malhotra, Sharun Mukand, Andrei Shleifer, and Richard Thaler for helpful comments, as well as seminar participants at Harvard, MIT, Brown, Monash, and UNSW. Li gratefully acknowledges financial support from the Australian Research Council Discovery Project DP240103257.