Bounded Rationality and Limited Datasets: Testable Implications, Identification, and Out-of-Sample Prediction
AbstractTheories of bounded rationality are typically characterized over an exhaustive data set. This paper aims to operationalize such theories in settings where the available data is limited. How does one test whether observed choices are consistent with a theory of bounded rationality if the data is incomplete? What information can be identified about preferences? How can out-of-sample predictions be made? We develop a methodology to address these questions, providing a simple test for various theories. We show that previous attempts overlook out-of-sample restrictions when testing bounded rationality theories, yielding "false positives" and precluding proper identification and prediction.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1853.
Length: 31 pages
Date of creation: Mar 2012
Date of revision: Jul 2013
Contact details of provider:
Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/
More information through EDIRC
Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Find related papers by JEL classification:
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-21 (All new papers)
- NEP-CBE-2012-03-21 (Cognitive & Behavioural Economics)
- NEP-FOR-2012-03-21 (Forecasting)
- NEP-UPT-2012-03-21 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paola Manzini & Marco Mariotti, 2007. "Sequentially Rationalizable Choice," American Economic Review, American Economic Association, vol. 97(5), pages 1824-1839, December.
- Christopher J. Tyson, 2012.
"Behavioral Implications of Shortlisting Procedures,"
697, Queen Mary, University of London, School of Economics and Finance.
- Christopher Tyson, 2013. "Behavioral implications of shortlisting procedures," Social Choice and Welfare, Springer, vol. 41(4), pages 941-963, October.
- Paola Manzini & Marco Mariotti, 2012. "Categorize Then Choose: Boundedly Rational Choice And Welfare," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1141-1165, October.
- Yusufcan Masatlioglu & Daisuke Nakajima & Erkut Ozbay, 2009.
NajEcon Working Paper Reviews
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Glena Ames).
If references are entirely missing, you can add them using this form.