A model of boundedly rational “neuro” agents

Kfir Eliaz (kfire@post.tau.ac.il) and Ariel Rubinstein (rariel@tauex.tau.ac.il)

Economic Theory, 2014, vol. 57, issue 3, 515-528

Abstract: We consider a model in which each agent in a population chooses one of two options. Each agent does not know what the available options are and can choose an option only after observing another agent who has already chosen that option. In addition, the agents’ preferences over the two options are correlated. An agent can either imitate an observed agent or wait until he meets two agents who made different choices, in which case he can compare their choices and choose accordingly. A novel feature of the model is that agents observe not only the choices made by others, but also some information about the process that led them to those choices. We study two cases: In the first, an agent notes whether the observed agent imitated others or whether he actually compared the available alternatives. In the second, an agent notes whether the observed agent’s decision was hasty or not. It is shown that in equilibrium the probability of making a mistake is higher in the second case and that the existence of these nonstandard “neuro” observations systematically biases the equilibrium distribution of choices. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Bounded rationality; Neuroeconomics; Choice procedures; Choice process data; D03; D87 (search for similar items in EconPapers)
Date: 2014
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Working Paper: A Model of Boundedly Rational “Neuro” Agents (2014)
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DOI: 10.1007/s00199-014-0834-y

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