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Complexity and Procedural Choice

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  • James Banovetz
  • Ryan Oprea

Abstract

We test the core ideas of the "automata" approach to bounded rationality, using simple experimental bandit tasks. Optimality requires subjects to use a moderately complex decision procedure, but most subjects in our baseline condition instead use simpler (often sub-optimal) procedures that economize on "states" in the algorithmic structure of the rule. When we artificially remove the mental costs of tracking states by having the computer track and organize past events, subjects abandon these simpler rules and use maximally complex optimal rules instead. The results thus suggest that the main type of complexity described in the automata literature fundamentally influences behavior.

Suggested Citation

  • James Banovetz & Ryan Oprea, 2023. "Complexity and Procedural Choice," American Economic Journal: Microeconomics, American Economic Association, vol. 15(2), pages 384-413, May.
    • Handle: RePEc:aea:aejmic:v:15:y:2023:i:2:p:384-413
    DOI: 10.1257/mic.20210032
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    Citations

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    Cited by:

    1. Stanton Hudja & Daniel Woods, 2024. "Exploration versus exploitation: A laboratory test of the single‐agent exponential bandit model," Economic Inquiry, Western Economic Association International, vol. 62(1), pages 267-286, January.
    2. Bossaerts, Peter & Bowman, Elizabeth & Fattinger, Felix & Huang, Harvey & Lee, Michelle & Murawski, Carsten & Suthakar, Anirudh & Tang, Shireen & Yadav, Nitin, 2024. "Resource allocation, computational complexity, and market design," Journal of Behavioral and Experimental Finance, Elsevier, vol. 42(C).
    3. Andrew Caplin & David J. Deming & Søren Leth-Petersen & Ben Weidmann, 2023. "Economic Decision-Making Skill Predicts Income in Two Countries," NBER Working Papers 31674, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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