Optimal similarity judgments in intertemporal choice (and beyond)

Fabrizio Adriani and Silvia Sonderegger ()
Additional contact information
Silvia Sonderegger: University of Nottingham

No 2019-06, Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham

Abstract: We use a simple cost-benefit analysis to derive optimal similarity judgments - addressing the question: when should we expect a decision maker to distinguish between different time periods or different prizes? Our key premise is that cognitive resources are costly and are to be deployed only where they really matter. We show that this simple insight can explain a number of observed anomalies, such as: (i) time preference reversal, (ii) magnitude effects, (iii) interval length effects. For each of these phenomena, our approach allows to identify the direction of the bias relative to the benchmark case where cognitive resources are costless. Finally, we show that, when applied to choice under risk, the same insights predict anomalies such as the ratio and certainty effects, and rationalize Rabin's risk aversion paradox. This suggests that the theory may provide a parsimonious explanation of behavioral anomalies in different contexts.

Keywords: Similarity judgments; Intertemporal Choice; Rational Inattention; Choice Under Risk (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-evo, nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.nottingham.ac.uk/cedex/documents/paper ... on-paper-2019-06.pdf (application/pdf)

Related works:
Journal Article: Optimal similarity judgments in intertemporal choice (and beyond) (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:not:notcdx:2019-06

Access Statistics for this paper

More papers in Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham School of Economics University of Nottingham University Park Nottingham NG7 2RD. Contact information at EDIRC.
Bibliographic data for series maintained by Jose V Guinot Saporta ().