Understanding and predicting human choice behaviour
Limitations in our memory can play a significant role in the economic decisions we make. “Imagine you are trying to decide which brand of coffee to buy,” explains Finite Memory(opens in new window) project coordinator Kemal Yildiz from Bilkent University(opens in new window) in Türkiye. “You probably don’t recall every coffee you have tried over the past 10 years. Instead, you think of your most recent or most memorable experiences.” This is what economists such as Yildiz call finite memory – the fact that people tend to use only a limited amount of past information when making choices. “In economics, traditional models often assume that people are perfectly rational and remember everything,” he says. “But in real life, our decisions are shaped by what is recent, familiar or emotionally striking. By incorporating finite memory into economic models, we get a much more accurate picture of how people behave.”
Reflecting how people think and choose
The Finite Memory project, supported by the Marie Skłodowska-Curie Actions(opens in new window) programme, sought to close the gap between economic theory and actual human behaviour. The aim was to develop models that better reflect how people think and choose – particularly when faced with complex environments, too many options or limited cognitive(opens in new window) resources. To achieve this, the project combined rigorous theoretical research with international collaboration. It involved advanced training in mathematical modelling and statistics, culminating in two original research papers(opens in new window). Yildiz spent two years at Princeton University, where he participated in seminars and worked closely with world-leading scholars. He also collaborated closely with scholars from the University of Maryland and Georgetown University. “This international experience was instrumental in generating new insights, forming valuable collaborations and significantly elevating the quality of the research,” he notes. “It also strengthened my technical skills and academic network.”
Uncovering patterns in human decision-making
The project introduced new methods for uncovering patterns in human decision-making based on observed choices. One major success was the identification of models that allow economists to infer hidden preferences from observed choices effectively, particularly in environments where individuals may be limited in their rationality. A new model for understanding how people behave when they feel overwhelmed by too many options was also developed. “A major achievement here was to explain why people sometimes reverse their preferences simply due to changes in available options – an everyday phenomenon in settings like shopping or investing,” says Yildiz. The project also applied sophisticated mathematical tools to better capture randomness in decision-making. These results were recognised by the academic community, including a revise and resubmit invitation from the prestigious ‘Journal of the European Economic Association’(opens in new window).
Connecting economic trends to individual choices
The models developed in Finite Memory can be used to help businesses and public institutions better understand and predict human choice behaviour, whether in designing products, user interfaces or public services. Policymakers could also use them to improve the structure of choice environments in areas such as healthcare, education or transportation. “We hope this work changes how economists connect large-scale economic trends – like consumer spending or voting behaviour – to the individual choices that drive them,” adds Yildiz. “By strengthening this connection, we can help to build systems that are more intuitive, effective and fair.”