Work in progress
Hierarchical Representations (draft available upon request)
Abstract
Abstract
Evidence from cognitive science suggests that people organize multi-dimensional information into hierarchies, yet we lack causal evidence on how the hierarchical ordering of dimensions shapes learning and choice. I study this question experimentally. Participants learn success probabilities of firm–project pairs over multiple rounds and repeatedly choose the pair most likely to succeed. I exogenously vary whether outcomes are grouped by firms or by projects, inducing the grouped dimension as the top level of participants' hierarchy while holding information constant. Participants process information conditionally on this top-level dimension: they form more accurate beliefs about summaries on it and locally optimize within it, while compressing information at lower levels. As a result, participants most accurately identify the best option within whichever dimension is placed at the top of their hierarchy, and these belief distortions translate into systematic choice distortions. Effects are stronger among low-attention participants, and procedural data confirm that participants process their top-level dimension first. Endogenous experiments demonstrate that individuals are not passive recipients of imposed structure: they adapt their representations to both cognitive costs and environmental diagnosticity.