Imperfect memory and the preference for increasing payments

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

We show how imperfect memory can imply a preference for increasing payments. We model an agent making a decision regarding effort in two periods. Before the first decision, the agent receives a signal related to the cost of effort, which is subsequently forgotten. Before the second decision, the agent makes an inference regarding the signal based on the publicly available information: the action taken and the wage paid. A preference for increasing payments naturally emerges. We show that this preference will only occur when the wage payments are neither very likely nor very unlikely to cover the cost of effort.

Original languageEnglish (US)
Pages (from-to)684-700
Number of pages17
JournalJournal of Institutional and Theoretical Economics
Volume165
Issue number4
DOIs
StatePublished - Dec 1 2009

Fingerprint

Payment
Wages
Costs
Inference

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

@article{9a26b131f50a4d298d92a89cdcea9a1b,
title = "Imperfect memory and the preference for increasing payments",
abstract = "We show how imperfect memory can imply a preference for increasing payments. We model an agent making a decision regarding effort in two periods. Before the first decision, the agent receives a signal related to the cost of effort, which is subsequently forgotten. Before the second decision, the agent makes an inference regarding the signal based on the publicly available information: the action taken and the wage paid. A preference for increasing payments naturally emerges. We show that this preference will only occur when the wage payments are neither very likely nor very unlikely to cover the cost of effort.",
author = "John Smith",
year = "2009",
month = "12",
day = "1",
doi = "10.1628/093245609789919667",
language = "English (US)",
volume = "165",
pages = "684--700",
journal = "Journal of Institutional and Theoretical Economics",
issn = "0932-4569",
publisher = "JCB Mohr",
number = "4",

}

Imperfect memory and the preference for increasing payments. / Smith, John.

In: Journal of Institutional and Theoretical Economics, Vol. 165, No. 4, 01.12.2009, p. 684-700.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Imperfect memory and the preference for increasing payments

AU - Smith, John

PY - 2009/12/1

Y1 - 2009/12/1

N2 - We show how imperfect memory can imply a preference for increasing payments. We model an agent making a decision regarding effort in two periods. Before the first decision, the agent receives a signal related to the cost of effort, which is subsequently forgotten. Before the second decision, the agent makes an inference regarding the signal based on the publicly available information: the action taken and the wage paid. A preference for increasing payments naturally emerges. We show that this preference will only occur when the wage payments are neither very likely nor very unlikely to cover the cost of effort.

AB - We show how imperfect memory can imply a preference for increasing payments. We model an agent making a decision regarding effort in two periods. Before the first decision, the agent receives a signal related to the cost of effort, which is subsequently forgotten. Before the second decision, the agent makes an inference regarding the signal based on the publicly available information: the action taken and the wage paid. A preference for increasing payments naturally emerges. We show that this preference will only occur when the wage payments are neither very likely nor very unlikely to cover the cost of effort.

UR - http://www.scopus.com/inward/record.url?scp=71049183597&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=71049183597&partnerID=8YFLogxK

U2 - 10.1628/093245609789919667

DO - 10.1628/093245609789919667

M3 - Article

AN - SCOPUS:71049183597

VL - 165

SP - 684

EP - 700

JO - Journal of Institutional and Theoretical Economics

JF - Journal of Institutional and Theoretical Economics

SN - 0932-4569

IS - 4

ER -