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Research Details

Procedural Analysis of Choice Rules with Applications to Bounded Rationality, American Economic Review

Abstract

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.

Type

Article

Author(s)

Yuval Salant

Date Published

2011

Citations

Salant, Yuval. 2011. Procedural Analysis of Choice Rules with Applications to Bounded Rationality. American Economic Review.(2): 724-748.

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