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Two-Stage Boundedly Rational Choice Procedures: Theory and Experimental Evidence

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Author Info
Paola Manzini () (Queen Mary, University of London and IZA Bonn)
Marco Mariotti () (Queen Mary, University of London)

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Abstract

We study and test a class of boundedly rational models of decision making which rely on sequential eliminative heuristics. We formalize two sequential decision procedures, both inspired by plausible models popular among several psychologists and marketing scientists. However we follow a standard ‘revealed preference’ economic approach by fully characterizing these procedures by few, simple and testable conditions on observed choice. Then we test the models (as well as the standard utility maximization model) with experimental data. We find that the large majority of individuals behave in a way consistent with one of our procedures, and inconsistent with the utility maximization model.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2341.

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Length: 69 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2341

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Related research
Keywords: bounded rationality; choice experiments;

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Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D9 - Microeconomics - - Intertemporal Choice and Growth

References listed on IDEAS
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  1. Paola Manzini & Marco Mariotti & Luigi Mittone, 2006. "Choosing Monetary Sequences: Theory and Experimental Evidence," IZA Discussion Papers 2129, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. James Andreoni, 2001. "Giving According to GARP," Theory workshop papers 339, UCLA Department of Economics. [Downloadable!]
  3. William T. Harbaugh & Kate Krause & Timothy R. Berry, 2001. "GARP for Kids: On the Development of Rational Choice Behavior," Artefactual Field Experiments 0048, The Field Experiments Website. [Downloadable!]
    Other versions:
  4. Masatlioglu, Yusufcan & Ok, Efe A., 2005. "Rational choice with status quo bias," Journal of Economic Theory, Elsevier, vol. 121(1), pages 1-29, March. [Downloadable!] (restricted)
  5. Ariel Rubinstein & Yuval Salant, 2006. "Two Comments on the Principle of Revealed Preference," Levine's Bibliography 321307000000000272, UCLA Department of Economics. [Downloadable!]
  6. Philippe Février & Michael Visser, 2004. "A Study of Consumer Behavior Using Laboratory Data," Experimental Economics, Springer, vol. 7(1), pages 93-114, February. [Downloadable!] (restricted)
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  7. Rubinstein, A., 2000. "Is it "Economics and Psychology"?: the Case of Hyperbolic Discounting," Papers 2000-21, Tel Aviv.
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  8. Rubinstein, Ariel, 1988. "Similarity and decision-making under risk (is there a utility theory resolution to the Allais paradox?)," Journal of Economic Theory, Elsevier, vol. 46(1), pages 145-153, October. [Downloadable!] (restricted)
  9. Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 7-42, December. [Downloadable!] (restricted)
  10. Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, vol. 69(6), pages 1403-1435, November. [Downloadable!] (restricted)
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  11. Paola Manzini & Marco Mariotti, 2004. "Rationalizing Boundedly Rational Choice," Microeconomics 0407005, EconWPA, revised 21 Jul 2005. [Downloadable!]
  12. Ariel Rubinstein, 2003. ""Economics and Psychology"? The Case of Hyperbolic Discounting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1207-1216, November. [Downloadable!] (restricted)
  13. John List & Craig Gallet, 2001. "What Experimental Protocol Influence Disparities Between Actual and Hypothetical Stated Values?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 20(3), pages 241-254, November. [Downloadable!] (restricted)
  14. Amartya Sen, 1997. "Maximization and the Act of Choice," Econometrica, Econometric Society, vol. 65(4), pages 745-780, July.
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  15. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  16. Camerer, Colin F. & Hogarth, Robin M., 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Working Papers 1059, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  17. Daniel Read, 2005. "Monetary incentives, what are they good for?," Journal of Economic Methodology, Taylor and Francis Journals, vol. 12(2), pages 265-276, June. [Downloadable!] (restricted)
  18. Gil Kalai & Ariel Rubinstein & Ran Spiegler, 2002. "Rationalizing Choice Functions By Multiple Rationales," Econometrica, Econometric Society, vol. 70(6), pages 2481-2488, November. [Downloadable!] (restricted)
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  19. repec:att:wimass:1920510 is not listed on IDEAS
  20. Sen, Amartya, 1993. "Internal Consistency of Choice," Econometrica, Econometric Society, vol. 61(3), pages 495-521, May. [Downloadable!] (restricted)
  21. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, vol. 70(2), pages 737-753, March. [Downloadable!] (restricted)
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