Procedural analysis of choice rules with applications to bounded rationality

Yuval Salant*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

30 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)724-748
Number of pages25
JournalAmerican Economic Review
Volume101
Issue number2
DOIs
StatePublished - Apr 2011

ASJC Scopus subject areas

  • Economics and Econometrics

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