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Non-Probabilistic Decision Making with Memory Constraints

Author

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  • Vostroknutov, Alexander

Abstract

In the model of choice, studied in this paper, the decision maker chooses the actions non-probabilistically in each period (Sarin and Vahid, 1999; Sarin, 2000). The action is chosen if it yields the biggest payoff according to the decision maker’s subjective assessment. Decision maker knows nothing about the process that generates the payoffs. If the decision maker remembers only recent payoffs, she converges to the maximin action. If she remembers all past payoffs, the maximal expected payoff action is chosen. These results hold for any possible dynamics of weights and are robust against the mistakes. The estimates of the rate of convergence reveal that in some important cases the convergence to the asymptotic behavior can take extremely long time. The model suggests simple experimental test of the way people memorize past experiences: if any weighted procedure is actually involved, it can possibly generate only two distinct modes of behavior.

Suggested Citation

  • Vostroknutov, Alexander, 2005. "Non-Probabilistic Decision Making with Memory Constraints," MPRA Paper 2653, University Library of Munich, Germany, revised Jul 2007.
  • Handle: RePEc:pra:mprapa:2653
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    File URL: https://mpra.ub.uni-muenchen.de/2653/1/MPRA_paper_2653.pdf
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    References listed on IDEAS

    as
    1. Huck Steffen & Sarin Rajiv, 2004. "Players With Limited Memory," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-27, September.
    2. Sarin, Rajiv, 2000. "Decision Rules with Bounded Memory," Journal of Economic Theory, Elsevier, vol. 90(1), pages 151-160, January.
    3. Sarin, Rajiv & Vahid, Farshid, 1999. "Payoff Assessments without Probabilities: A Simple Dynamic Model of Choice," Games and Economic Behavior, Elsevier, vol. 28(2), pages 294-309, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Adaptive learning; constrained memory; bandit problem; non-probabilistic choice;

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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