Selective Memory Equilibrium

We study agents who are more likely to remember some experiences than others, but who update their beliefs as if the experiences they remember are the only ones that occurred. Long-run behavior is characterized by selective memory equilibrium where people choose actions that maximize their payoff given their distorted recollection of the outcomes. We show how this captures the effects of many biases from the literature. We also study the long-run outcomes when the expected number of recalled experiences is bounded and if an experience is recalled it is more likely to be recalled again, and agents who are only partially na¨ıve about their selective memory. Jehiel, Koster, Oprea,