(Re-)establishing a unified framework of bounded rationality: A theoretical and empirical integration of information processing and decision-making

Abstract

Decision-making depends on processed information and information processing motivates the impending decision. Although these two processes are thus interdependent, scholars only rarely investigate information processing and decision-making jointly. This is problematic, as it has spurred individual streams of research that are increasingly divergent. We address this concern by establishing the Cognitive Information Processing and Decision-Making (CIPDM) model as an integrative framework of the two processes. In this model, we describe the key mechanisms that explain how a perceived information element is encoded in memory and subsequently utilized in the selection of an action. The CIPDM model is validated through a two-stage empirical approach, leveraging how the 2008 economic crisis affected U.S. commercial banks’ attention and subsequent risk-taking. We are thereby able to trace how perceived information elements ultimately affect decision-making. The merit of the CIPDM model is that it explains the process as a whole, as compared to the current single sub-mechanism models. We contribute to the information process and decision-making literatures, establishing an (quantitative) empirically-validated integrative framework that paves the way for a joint investigation of information processing and decision-making. It highlights the importance of the mechanisms that link the two processes, opening up new avenues to investigation how a perceived element of information is able to affect the eventual selection of an action.