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Procedural Analysis of Choice Rules with Applications to Bounded Rationality

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  • Yuval Salant
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    Abstract

    I study how limited abilities to process information affect choice behavior. I model the decision-making process by an automaton, and measure the complexity of a specific choice rule by the minimal number of states an automaton implementing the rule uses to process information. I establish that any choice rule that is less complicated than utility maximization displays framing effects. I then prove that choice rules that result from an optimal trade-off between maximizing utility and minimizing complexity are history-dependent satisficing procedures that display primacy and recency effects. (JEL D01, D03, D11, D83)

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.2.724
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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 101 (2011)
    Issue (Month): 2 (April)
    Pages: 724-48

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    Handle: RePEc:aea:aecrev:v:101:y:2011:i:2:p:724-48

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    1. Kalai, Gil, 2003. "Learnability and rationality of choice," Journal of Economic Theory, Elsevier, vol. 113(1), pages 104-117, November.
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    Cited by:
    1. Itai Ater & Eugene Orlov, 2013. "The Effect of the Internet on Performance and Quality: Evidence from the Airline Industry," Working Papers 13-07, NET Institute.
    2. Novarese, Marco & Wilson, Chris M., 2013. "Being in the Right Place: A Natural Field Experiment on List Position and Consumer Choice," MPRA Paper 48074, University Library of Munich, Germany.
    3. Muto, Nozomu, 2014. "Strategic complexity in repeated extensive games," Games and Economic Behavior, Elsevier, vol. 83(C), pages 45-52.
    4. Dinko Dimitrov & Saptarshi Mukherjee & Nozomu Muto, 2013. "List-based decision problems," UFAE and IAE Working Papers 927.13, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).

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