Inertial Behavior and Generalized Partition

Abstract

Behavior is inertial if it does not react to the apparent arrival of relevant information. In a context where information is subjective, we formulate an axiom that captures inertial behavior, and provide a representation that explains such behavior as that of a rational decision maker who perceives a particular type of information structure, we call a generalized partition. We characterize the learning processes that can be described by a generalized partition. We then investigate behavioral protocols that may lead individuals to perceive a generalized partition (and thus to display inertial behavior) even when facing a di¤erent type of information structure: A cognitive bias referred to as cognitive inertia and a bound on rationality, which we term shortsightedness.