Intertemporal Bounded Rationality as Consideration Sets with Contraction Consistency
How would a boundedly rational agent react to a larger menu? I model choice from an unobservable, subjective consideration subset. Consideration sets satisfy Sen’s property alpha: larger objective choice sets can generate smaller consideration sets. The contribution of this paper is a representation of choice among menus: choice sets are only as valuable as the best item in their subjective subsets, so larger sets can be worse. Unlike people facing temptation, a boundedly rational decision maker can strictly prefer both of two choice sets to their union. This model of intertemporal choice reflects how an agent who satisfies Weak WARP would choose, if sophisticated about her bounded rationality.
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Volume (Year): 11 (2011)
Issue (Month): 1 (June)
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- Todd Sarver, 2008. "Anticipating Regret: Why Fewer Options May Be Better," Econometrica, Econometric Society, vol. 76(2), pages 263-305, 03.
- Yusufcan Masatlioglu & Daisuke Nakajima & Erkut Ozbay, 2009.
NajEcon Working Paper Reviews
- Kreps, David M, 1979. "A Representation Theorem for "Preference for Flexibility"," Econometrica, Econometric Society, vol. 47(3), pages 565-577, May.
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