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Order-k rationality

Salvador Barberà (), Geoffroy de Clippel (), Alejandro Neme () and Kareen Rozen ()
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Salvador Barberà: Barcelona GSE and Universitat Autònoma de Barcelona
Alejandro Neme: Universidad Nacional de San Luis and CONICET
Kareen Rozen: Brown University

Economic Theory, 2022, vol. 73, issue 4, No 11, 1135-1153

Abstract: Abstract A decision maker (DM) may not perfectly maximize her preference over the feasible set. She may feel it is good enough to maximize her preference over a sufficiently large consideration set; or just require that her choice is sufficiently well-ranked (e.g., in the top quintile of options); or even endogenously determine a threshold for what is good enough, based on an initial sampling of the options. Heuristics such as these are all encompassed by a common theory of order-k rationality, which relaxes perfect optimization by only requiring choices from a set S to fall within the set’s top k(S) elements according to the DM’s preference ordering. Heuristics aside, this departure from rationality offers a natural way, in the classic ‘as if’ tradition, to gradually accommodate more choice patterns as k increases. We characterize the empirical content of order-k rationality (and related theories), and provide a tractable testing method which is comparable to the method of checking SARP.

Keywords: Order-k rationality; Choice heuristics; Satisficing; Limited attention; D010 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Order-k Rationality (2020) Downloads
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DOI: 10.1007/s00199-021-01350-z

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