Behavioral Attenuation

We report a large-scale examination of behavioral attenuation: due to information-processing constraints, the elasticity of people’s decisions to fundamentals is generally too small. We implement 30 experiments on a broad range of economic decisions, including choice, valuation, belief formation, strategic games and generic optimization. In 93% of our experiments, the elasticity of decisions to fundamentals decreases in participants’ cognitive uncertainty. Moreover, in decision problems with objective solutions, elasticities are universally smaller than is optimal. We show that the magnitude of attenuation is partly driven by the complexity of the decision problem. Many widely-studied anomalies represent special cases of behavioral attenuation.