Are Cognitive Biases Irrational?

Are Cognitive Biases Irrational?

It’s easy to feel immured by the sheer abundancy and immediacy of information in the digital age. Clearly, there is no longer a shortage of information – instead, our stores of attention are becoming the limitation factor in many endeavours. Consequently, ignoring attention’s scarcity has enormous impacts on the accuracy of our economic models.

Attention economics is a sub-field of behavioural economics that offers explanations for supposedly irrational results, within the bounds of a dominant economic framework. If attention is viewed as a scarce resource, then its consumption must be costly. Herbert Simon and the pioneers of behavioural economics proposed that cognitive biases and bottlenecks are rational responses. When the cost of consuming one’s ‘attention capital’ outweighs the benefits of rationality, agents hare compelled to be inattentive. The wider implication is that bounded rationality is not some overt limitation of the human mind, but a measured response to preserve valuable attention capital. In other words, sometimes being perfectly rational isn’t worth the attention required.

Additionally, the economic study of attention also highlights an important, yet hard to eliminate Problems of:  information pollution: spam, email, digital marketers and all their get-rich-quick derivatives manifest from an appeal to our cognitive functions. Because attention capital is inherently valuable, frictional externalities that consume it are burdens on society. From this perspective, advertising isn’t just annoying – it’s extracting the total surplus of an economic transaction between two private agents.

Economic researchers have been hard at work devising solutions. One such solution is an ‘attention bond’, or collateral that an advertiser must provide. If sufficient complaints are received, the collateral is default. Essentially, it acts as a disincentive to spread information pollution. Perhaps most importantly, this approach avoids obvious issues derived from blanket illegality. For example, ill-defined laws against information pollution could unfairly disadvantage non-profit charitable organizations that rely on text messages and emails to raise funds. Whilst one could argue that the cost of advertising, itself, is an effective barrier to information pollution, it’s undoubtedly clear that anyone with a library card and a few bucks can set up an account bot and pollute away. The bond solution, on the other hand, may be significant enough to act as an effective deterrent. One obvious issue with this approach is the additional barriers to entry it imposes – marketers with a higher budget are clearly advantaged. Therefore, the bond should be proportional to income or revenue.

An ‘attention bond’ is just one possible solution from a medium that is still evolving to this day. Libertarian pundits, for example, propose the creation of attention property rights to encourage private bargaining and efficient solutions.  I’ve highlighted the effects of recognising attention as an economic resource for one reason – to show that economic models are malleable and highly sensitive to small changes in their variables. This means that we have to be extremely wary of making cursory ideological judgements, as they have real consequences.