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Bounded Rationality and Limited Datasets: Testable Implications, Identifiability, and Out-of-Sample Prediction

Theories of bounded rationality are typically characterized over an exhaustive data set. This paper aims to operationalize some leading theories when the available data is limited, as is the case in most practical settings. How does one tell if 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? Our approach is contrasted with earlier attempts to examine bounded rationality theories on limited data, showing their notion of consistency is inappropriate for identifiability and out-of-sample prediction.

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File URL: http://www.brown.edu/academics/economics/sites/brown.edu.academics.economics/files/uploads/2012-7_paper.pdf
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Paper provided by Brown University, Department of Economics in its series Working Papers with number 2012-7.

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Date of creation: 2012
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Handle: RePEc:bro:econwp:2012-7
Contact details of provider: Postal: Department of Economics, Brown University, Providence, RI 02912

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  1. Yusufcan Masatlioglu & Daisuke Nakajima & Erkut Ozbay, 2009. "Revealed Attention," NajEcon Working Paper Reviews 814577000000000409, www.najecon.org.
  2. Christopher J. Tyson, 2012. "Behavioral Implications of Shortlisting Procedures," Working Papers 697, Queen Mary University of London, School of Economics and Finance.
  3. Paola Manzini & Marco Mariotti, 2007. "Sequentially Rationalizable Choice," American Economic Review, American Economic Association, vol. 97(5), pages 1824-1839, December.
  4. 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.
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