A Theory of Cognitive Economics

One of the ideas that I have been kicking around is integrating some behavioral observations into a theory of cognitive economics.

It seems to me that many of the observations that come out of behavioral economics could be explained by two facts:

1) Thinking is hard.

2) People gain utility from imagining things that will never happen.

Both of these facts seem to be born out in everyday experience. Any professor knows that the first is true. Thinking must be hard. If it wasn’t then we wouldn’t have to offer students incentives to do it.

This fact can explain a lot of why people use rules of thumb and other short cuts when making choices. The cost of thinking simply outweighs the benefits. To explain why people who engage in relatively sophisticated thinking on a regular basis still use short cuts we simply need cognitive capital.

There are tools that we gain for thinking about certain types of issues that are not easily transferable to some others. Perhaps, mathematics can be seen as a particularly high return form of cognitive capital.

The second fact is perhaps less obvious but I think can explain a lot. Sometimes people purchase products which they do not use. Outside observers could easily predict that the person will not use them, so then why do they buy them?

Well, one reason might be simply cognitive consumption. The thought of myself going to the ballet all season long might be enough to get me to spring for season tickets, even if in reality chances are that I will miss most of the shows.

I am faced with two options. Option one, I buy season tickets and consume both the shows that I see and the thought of the seeing all of the shows. Option two, I buy the tickets individually and consume the shows I see and the thought only of the shows I see.

If the benefit of thinking about seeing the shows I actually missed is worth more than the additional cost of the season tickets I will buy the tickets. I will also be better off from having done so.

In a sense the tickets are a compliment to my imagining myself going to the show. The imagination is richer and fuller if I actually have the tickets.

I believe that an increasingly important part of our economy consists of cognitive capital and items which are complements to cognitive consumption. Understanding what these are and establishing the associated elasticities could enrich economists' ability to predict how individuals will actually behave. I hope this is true, but its hard to figure out. For all I know this could all be one exercise in my own cognitive consumption.