Rational Memory with Decay

2022-05-09

Previous economic models of memory have failed to incorporate one of its critical features: decay. It has long been established that memories fade over time, losing fidelity. In this paper we show that a framework of rational memory with decay can produce the recency effect and other economically interesting phenomena across a wide range of economic contexts. We apply the framework to models of elections, insurance purchasing, and advertising. In these settings, the framework reproduces empirically established behaviors and produces additional insights.