This paper develops a formal theory of cognitive debt: the stock of unverified reasoning obligations that accumulates when individuals use AI as a substitute rather than a complement for first-principles cognition. The model features two state variables per agent, cognitive capital and cognitive debt, and a multiplicative production technology in which cognitive capital serves as collateral that determines the return to AI adoption.
We establish six propositions: rational agents incur positive cognitive debt because the costs are deferred, partially externalized, and masked by short-run productivity gains. Tranquil periods lower subjective risk assessments, raise AI substitution intensity, and compound leverage, generating a cognitive Minsky moment where subjective risk falls while true systemic fragility rises. Expected crisis losses are convex in aggregate leverage.
Post-crisis, output-target pressure can create a false-correction loop where agents patch AI failures with more AI. The decentralized equilibrium over-adopts substitutive AI relative to the social optimum due to systemic risk, cognitive public goods, and arms-race externalities. In a two-type heterogeneous-agent economy, high-cognitive-capital agents adopt AI more intensively and may eventually erode their unaided cognitive capital below that of initially lower-skilled agents.
Blogger's Review: This paper delves into the complex role of AI in cognitive processes, revealing its potential risks and rewards. The concept of cognitive debt provides a fresh perspective on the impact of AI as a replacement for traditional thinking, particularly concerning the dynamic changes in systemic fragility.