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Inferring Cognitive Heterogeneity from Aggregate Choices

Listed author(s):
  • 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)

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.

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File URL: http://www.st-andrews.ac.uk/~wwwecon/repecfiles/4/1701.pdf
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Paper provided by Department of Economics, University of St. Andrews in its series Discussion Paper Series, Department of Economics with number 201701.

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Date of creation: 13 Feb 2017
Date of revision: 25 May 2017
Handle: RePEc:san:wpecon:1701
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  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.
  3. Geoffroy de Clippel & Kfir Eliaz & Kareen Rozen, 2014. "Competing for Consumer Inattention," Journal of Political Economy, University of Chicago Press, vol. 122(6), pages 1203-1234.
  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.
  7. Terri Kneeland, 2015. "Identifying Higher‐Order Rationality," Econometrica, Econometric Society, vol. 83(5), pages 2065-2079, September.
  8. Yuval Salant & Ariel Rubinstein, 2008. "(A, f): Choice with Frames -super-1," Review of Economic Studies, Oxford University Press, vol. 75(4), pages 1287-1296.
  9. Baigent, Nick & Gaertner, Wulf, 1996. "Never Choose the Uniquely Largest: A Characterization," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 8(2), pages 239-249, August.
  10. Daniel McFadden, 2001. "Economic Choices," American Economic Review, American Economic Association, vol. 91(3), pages 351-378, June.
  11. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387.
  12. Paola Manzini & Marco Mariotti, 2007. "Sequentially Rationalizable Choice," American Economic Review, American Economic Association, vol. 97(5), pages 1824-1839, December.
  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.
  15. Andrew Caplin & Mark Dean & Daniel Martin, 2011. "Search and Satisficing," American Economic Review, American Economic Association, vol. 101(7), pages 2899-2922, December.
  16. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
  17. Efe A. Ok & Pietro Ortoleva & Gil Riella, 2015. "Revealed (P)Reference Theory," American Economic Review, American Economic Association, vol. 105(1), pages 299-321, January.
  18. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  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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