A Theory of Intuition and Contemplation in Belief Updating
Abstract: This work is motivated by two key ideas. First, the process through which information is generated is often complicated, making it difficult for individuals to fully extract the true informational content of signals. Second, taking time to think about the meaning of signals can allow an agent to understand its true informational content. In this paper we provide a relatively general theory of biased belief-updating in which investment in cognition serves as a bridge between non-Bayesian updates and their Bayesian counterpart. As an application, we explore the welfare implications for cognitively-bounded agents in information design settings.