Regions of rationality: Maps for bounded agents

Robin Hogarth () and Natalia Karelaia

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: An important problem in descriptive and prescriptive research in decision making is to identify “regions of rationality,” i.e., the areas for which heuristics are and are not effective. To map the contours of such regions, we derive probabilities that heuristics identify the best of m alternatives (m > 2) characterized by k attributes or cues (k > 1). The heuristics include a single variable (lexicographic), variations of elimination-by-aspects, equal weighting, hybrids of the preceding, and models exploiting dominance. We use twenty simulated and four empirical datasets for illustration. We further provide an overview by regressing heuristic performance on factors characterizing environments. Overall, “sensible” heuristics generally yield similar choices in many environments. However, selection of the appropriate heuristic can be important in some regions (e.g., if there is low inter-correlation among attributes/cues). Since our work assumes a “hit or miss” decision criterion, we conclude by outlining extensions for exploring the effects of different loss functions.

Keywords: Decision making; Bounded rationality; Lexicographic rules; Choice theory; Leex (search for similar items in EconPapers)
JEL-codes: D81 M10 (search for similar items in EconPapers)
Date: 2005-04, Revised 2006-03
New Economics Papers: this item is included in nep-cbe, nep-dcm and nep-evo
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://econ-papers.upf.edu/papers/828.pdf Whole Paper (application/pdf)

Related works:
Working Paper: Regions of Rationality: Maps for bounded agents (2015)
Journal Article: Regions of Rationality: Maps for Bounded Agents (2006)
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:upf:upfgen:828

Access Statistics for this paper

More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Bibliographic data for series maintained by ( this e-mail address is bad, please contact ).