Memory, Attention, and Choice*

Abstract

Building on a textbook description of associative memory (Kahana 2012), we present a model of choice in which a choice option cues recall of similar past experiences. Memory shapes valuation and decisions in two ways. First, recalled experiences form a norm, which serves as an initial anchor for valuation. Second, salient quality and price surprises relative to the norm lead to large adjustments in valuation. The model unifies many well-documented choice puzzles, including the attribution and projection biases, inattention to hidden attributes, background contrast effects, and context-dependent willingness to pay. Unifying these puzzles on the basis of selective memory and attention to surprise yields multiple new predictions.