Choice with Limited Capacity

Sen Geng and Erkut Ozbay

No GRU_2019_002, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: The number of alternatives in a choice problem may have an impact on the consid- eration of people with limited capacity: a decision maker considers all the available alternatives if the number of alternatives does not exceed her capacity; otherwise, she applies a rationale to reduce the number of alternatives to within her capacity. We provide the necessary and sufficient conditions for a choice function to be rationalizable by a shortlisting with limited capacity and recover the unobserved capacity from the observed choices, which turns out to be unique when choice reversals exist. Secondly, for the settings in which consideration sets are observable, we provide the necessary and sufficient conditions for a consideration function to be generated by the shortlisting with limited capacity procedure. Finally, we investigate a special case in which exactly the same number as the capacity of a decision maker are left when the elimination stage is triggered and show that only certain capacities are consistent with this special case.

Keywords: consideration set; shortlisting; limited capacity (search for similar items in EconPapers)
JEL-codes: D11 D81 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2019-01-18
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