Adaptation Through Experience or Description? Evidence from an Experiment on Efficient Coding

Cary Frydman and Lawrence Jin

No 34214, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The principle of efficient coding implies that the perception of monetary payoffs is shaped by the decision maker's prior beliefs. Specifically, payoffs that the decision maker expects to encounter more frequently should be perceived more accurately. Most previous tests of efficient coding rely on the decision maker's experience to shape the prior. We conduct a pre-registered experiment to test whether descriptive information about the prior affects behavior in a manner consistent with efficient coding. We randomize whether participants receive this information before the experiment begins. We find strong evidence for efficient coding; however, we detect no effect of information provision on behavior. Our results are consistent with the hypothesis that experience quickly crowds out any effect of descriptive information on optimal allocation of coding resources.

JEL-codes: G0 G40 G41 (search for similar items in EconPapers)
Date: 2025-09
New Economics Papers: this item is included in nep-exp
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