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Satisficing in Portfolio Selection - Theoretical Aspects and Experimental Tests

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  • Werner Güth

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Abstract

The satisficing approach with its three constituent processes, aspiration formation, satisficing, and aspiration adjustment, is formally elaborated for a specific class of portfolio selection tasks. It is partly poorly confirmed by experimental data, indicating that bounded rationality requires teaching or, respectively, consulting, and learning. It is also discussed and tested experimentally whether satisficing is task transcending (are there individual constants in satisficing behavior for related tasks?) and absorbable (do we stick to satisficing behavior when becoming aware of it?).

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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2006-16.

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Length: 31 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:esi:discus:2006-16

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  1. Werner Güth & Hartmut Kliemt, 2004. "Bounded Rationality and Theory Absorption," Papers on Strategic Interaction 2004-27, Max Planck Institute of Economics, Strategic Interaction Group.
  2. Guth, Werner, 2000. "Boundedly rational decision emergence - a general perspective and some selective illustrations," Journal of Economic Psychology, Elsevier, vol. 21(4), pages 433-458, August.
  3. Werner Güth & Gerlinde Fellner & Ev Martin, 2006. "Satisficing or Optimizing? - An Experimental Study," Papers on Strategic Interaction 2006-11, Max Planck Institute of Economics, Strategic Interaction Group.
  4. Gerlinde Fellner & Werner Güth & Boris Maciejovsky, 2005. "Satisficing in Financial Decision Making A Theoretical and Experimental Attempt to Explore Bounded Rationality," Papers on Strategic Interaction 2005-23, Max Planck Institute of Economics, Strategic Interaction Group.
  5. Martin Beckenkamp, 2004. "Is there an optimization in bounded rationality? The ratio of aspiration levels," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2004_15, Max Planck Institute for Research on Collective Goods.
  6. Selten, Reinhard, 1998. "Features of experimentally observed bounded rationality," European Economic Review, Elsevier, vol. 42(3-5), pages 413-436, May.
  7. Tietz, Reinhard, 1992. "Semi-normative theories based on bounded rationality," Journal of Economic Psychology, Elsevier, vol. 13(2), pages 297-314, June.
  8. Karni, Edi & Schmeidler, David, 1991. "Utility theory with uncertainty," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 33, pages 1763-1831 Elsevier.
  9. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
  10. Werner Güth, 2000. "Boundedly Rational Decision Emergence - A General Perspective and Some Selective Illustrations," CESifo Working Paper Series 330, CESifo Group Munich.
  11. Werner Güth & M. Vittoria Levati & Matteo Ploner, 2006. "Is Satisficing Absorbable? - An Experimental Study," Papers on Strategic Interaction 2006-10, Max Planck Institute of Economics, Strategic Interaction Group.
  12. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  13. Werner Güth & Gerlinde Fellner & Ev Martin, 2006. "Task Transcending Satisficing - An Experimental Study," Papers on Strategic Interaction 2006-09, Max Planck Institute of Economics, Strategic Interaction Group.
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