A note on case-based optimization with a non-degenerate similarity function

Ani Guerdjikova

No 04-46, Papers from Sonderforschungsbreich 504

Abstract: The paper applies the "realistic-ambitious" rule for adaptation of the aspiration level suggested by Gilboa and Schmeidler (1996) to a situation in which the similarity between the available acts is represented by a non-degenerate function. The paper shows that the optimality result obtained by Gilboa and Schmeidler (1996) in general fails. With a concave similarity function, the best corner act is chosen in the limit. Introducing convex regions into the similarity function improves the limit choice. A sufficiently fine similarity function allows to approximate optimal behavior with an arbitrary degree of precision.

Keywords: Case-Based Decision Theory; similarity; optimal behavior (search for similar items in EconPapers)
JEL-codes: D81 D83 (search for similar items in EconPapers)
Date: 2004
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