Selective Observation Under Limited Resources Biases Social Inference Through Hysteresis

Despite limited access to others actions and outcomes, humans excel at inferring hidden intentions. Given only partial access, how do they decide what to observe, and how does selective observation shape inference? Here, we examined how choosing what to observe can bias the inference about others intentions. Participants played a game where they pursued a fleeing target while a computerized opponent acted competitively or cooperatively. Participants overestimated the opponents competitiveness after the opponent acted more competitively than expected, whereas no such bias occurred when the opponent was more cooperative than expected. This asymmetry depended on the sequence of events, resembling hysteresis, a form of path dependence observed in physical systems. We found that these biases became stronger when participants chose to observe the opponent instead of their own avatar, and this choice came at the cost of losing precise control over their avatar. Our findings highlight the trade-off in selecting what to observe, as the resulting inference biases propagate differently depending on the interaction history.