Procedural Analysis of Choice Rules with Applications to Bounded Rationality
AbstractI 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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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 101 (2011)
Issue (Month): 2 (April)
Find related papers by JEL classification:
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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- Kalai, Gil, 2003. "Learnability and rationality of choice," Journal of Economic Theory, Elsevier, vol. 113(1), pages 104-117, November.
- 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.
- 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).
- 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.
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