Procedural Analysis of Choice Rules with Applications to Bounded Rationality
I study how limited abilities to process information affect choice behavior. I model the decision-making process by an automaton, and measure the complexity of a specific choice rule by the minimal number of states an automaton implementing the rule uses to process information. I establish that any choice rule that is less complicated than utility maximization displays framing effects. I then prove that choice rules that result from an optimal trade-off between maximizing utility and minimizing complexity are history-dependent satisficing procedures that display primacy and recency effects. (JEL D01, D03, D11, D83)
Year of publication: |
2011
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Authors: | Salant, Yuval |
Published in: |
American Economic Review. - American Economic Association - AEA. - Vol. 101.2011, 2, p. 724-48
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Publisher: |
American Economic Association - AEA |
Saved in:
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