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Inferring Cognitive Heterogeneity from Aggregate Choices

Author

Listed:
  • Valentino Dardanoni

    () (Universita' degli Studi di Palermo)

  • Paola Manzini

    () (University of St Andrews and IZA)

  • Marco Mariotti

    () (Queen Mary University of London)

  • Christopher J. Tyson

    () (Queen Mary University of London)

Abstract

We study the problem of recovering the distribution of cognitive characteristics in a population of boundedly rational agents from their aggregate choices. In contrast to much of the theoretical literature on bounded rationality, we make use of choices from a fixed menu of alternatives rather than from a rich collection of menus. We examine in detail two models of choice with limited attention, and we show that both “consideration probability” and “consideration capacity” distributions are substantially identified by aggregate choice shares. These two models are applied to data on over-the-counter painkiller sales, yielding concurrent estimates that on average two or three out of the eight available products are considered in this market. We also demonstrate how our framework can be used “counterfactually” for welfare analysis.

Suggested Citation

  • Valentino Dardanoni & Paola Manzini & Marco Mariotti & Christopher J. Tyson, 2017. "Inferring Cognitive Heterogeneity from Aggregate Choices," Discussion Paper Series, Department of Economics 201701, Department of Economics, University of St. Andrews, revised 25 May 2017.
  • Handle: RePEc:san:wpecon:1701
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    File URL: http://www.st-andrews.ac.uk/~wwwecon/repecfiles/4/1701.pdf
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    References listed on IDEAS

    as
    1. Christopher Tyson, 2013. "Behavioral implications of shortlisting procedures," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 41(4), pages 941-963, October.
    2. Paola Manzini & Marco Mariotti, 2014. "Stochastic Choice and Consideration Sets," Econometrica, Econometric Society, vol. 82(3), pages 1153-1176, May.
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    4. Gil Kalai & Ariel Rubinstein & Ran Spiegler, 2002. "Rationalizing Choice Functions By Multiple Rationales," Econometrica, Econometric Society, vol. 70(6), pages 2481-2488, November.
    5. Tyson, Christopher J., 2008. "Cognitive constraints, contraction consistency, and the satisficing criterion," Journal of Economic Theory, Elsevier, vol. 138(1), pages 51-70, January.
    6. Nakajima, Daisuke & Masatlioglu, Yusufcan, 2013. "Choice by iterative search," Theoretical Economics, Econometric Society, vol. 8(3), September.
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    13. Yusufcan Masatlioglu & Daisuke Nakajima & Erkut Y. Ozbay, 2012. "Revealed Attention," American Economic Review, American Economic Association, vol. 102(5), pages 2183-2205, August.
    14. Andrew Caplin & Mark Dean, 2015. "Revealed Preference, Rational Inattention, and Costly Information Acquisition," American Economic Review, American Economic Association, vol. 105(7), pages 2183-2203, July.
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    19. Crawford, Gregory S. & Griffith, Rachel & Iaria, Alessandro, 2016. "Demand Estimation with Unobserved Choice Set Heterogeneity," CEPR Discussion Papers 11675, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    attention; bounded rationality; revealed preference; stochastic choice;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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