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Rationalizing Boundedly Rational Choice

Author

Listed:
  • Paola Manzini

    (Queen Mary, University of London & IZA)

  • Marco Mariotti

    (Queen Mary, University of London)

Abstract

A Rational Shortlist Method (RSM) translates into economic language some sequential choice heuristics studied in psychology. We show that the use of this boundedly rational procedure can be detected from observed choice data through tests that are very similar to those used to detect `rational' choice (such as Samuelson's WARP). Yet, RSMs are compatible with some highly `irrational' patterns of choice observed in experiments, such as pairwise cycles. We also provide partial results on a generalization of RSMs.

Suggested Citation

  • Paola Manzini & Marco Mariotti, 2004. "Rationalizing Boundedly Rational Choice," Microeconomics 0407005, University Library of Munich, Germany, revised 21 Dec 2005.
    • Handle: RePEc:wpa:wuwpmi:0407005
    Note: Type of Document - pdf; pages: 26
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mic/papers/0407/0407005.pdf
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    References listed on IDEAS

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    8. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
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    Citations

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    Cited by:

    1. Michele Lombardi, 2008. "Uncovered set choice rules," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 31(2), pages 271-279, August.
    2. B. Douglas Bernheim & Antonio Rangel, 2009. "Beyond Revealed Preference: Choice-Theoretic Foundations for Behavioral Welfare Economics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(1), pages 51-104.
    3. Paola Manzini & Marco Mariotti & Luigi Mittone, 2010. "Choosing monetary sequences: theory and experimental evidence," Theory and Decision, Springer, vol. 69(3), pages 327-354, September.
    4. SPRUMONT, Yves & EHLERS, Lars, 2005. "Top-Cycle Rationalizability," Cahiers de recherche 25-2005, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    5. Manzini, Paola & Mariotti, Marco, 2006. "Two-Stage Boundedly Rational Choice Procedures: Theory and Experimental Evidence," IZA Discussion Papers 2341, Institute of Labor Economics (IZA).
    6. Tyson, Christopher J., 2008. "Cognitive constraints, contraction consistency, and the satisficing criterion," Journal of Economic Theory, Elsevier, vol. 138(1), pages 51-70, January.
    7. Tyson, Christopher J., 2008. "Cognitive constraints, contraction consistency, and the satisficing criterion," Journal of Economic Theory, Elsevier, vol. 138(1), pages 51-70, January.
    8. Paola Manzini & Marco Mariotti, 2009. "Consumer choice and revealed bounded rationality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(3), pages 379-392, December.
    9. Houy Nicolas, 2007. "Rationality and Order-Dependent Sequential Rationality," Theory and Decision, Springer, vol. 62(2), pages 119-134, March.
    10. Green, Jerry & Hojman, Daniel, 2007. "Choice, Rationality and Welfare Measurement," Working Paper Series rwp07-054, Harvard University, John F. Kennedy School of Government.
    11. Manzini, Paola & Mariotti, Marco, 2006. "Two-Stage Boundedly Rational Choice Procedures: Theory and Experimental Evidence," IZA Discussion Papers 2341, Institute of Labor Economics (IZA).
    12. Michele Lombardi, 2008. "Uncovered set choice rules," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 31(2), pages 271-279, August.
    13. Paola Manzini & Marco Mariotti, 2005. "Shortlisting," Public Economics 0503006, University Library of Munich, Germany, revised 23 Mar 2006.

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    More about this item

    Keywords

    rationalizability of choice; bounded rationality; intransitive choice; incomplete preferences; menu dependence;
    All these keywords.

    JEL classification:

    • D0 - Microeconomics - - General

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