Stochastic choice with limited memory
Journal of Economic Theory, 2022, vol. 205, issue C
We model a decision maker who observes available alternatives according to a list and stochastically forgets some alternatives. Each time the decision maker observes an item in the list, she recalls previous alternatives with some probability, conditional on those alternatives being recalled until this point. The decision maker maximizes a preference relation over the set of alternatives she can recall. We show that if every available alternative is chosen with strictly positive probability, the preference order and the list order must coincide in any limited memory representation. Under the full support assumption, the preference ordering, the list ordering and the memory parameters are uniquely identified up to the ranking of the two least preferred alternatives. We provide conditions on observable choice probabilities that characterize the model under the full support assumption. We then apply our model to study the pricing problem of a monopolist who faces consumers with limited memory. We show that when the probability of forgetting is high, the monopolist is better off charging a lower price than the optimal price in the perfect memory case.
Keywords: Stochastic choice; Memory; List (search for similar items in EconPapers)
JEL-codes: D11 D91 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:205:y:2022:i:c:s0022053122001387
Access Statistics for this article
Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell
More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().