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This article summarizes failures of contingent thinking related to cognitive limitations in behavioral economics, suggesting implications for applied environments.
In recent years, experiments have documented a new mechanism that leads to failures of profit maximization: the failure of contingent thinking (FCT). This article summarizes key experimental findings, clarifies what constitutes an FCT, and outlines how FCTs can be tested in other environments. Subsequently, we relate FCTs to recent theoretical work on cognitive limitations in behavioral economics. Finally, we connect FCTs to suboptimal behavior documented in applied environments.
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Niederle et al. (2023) studied this question.
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