A Testable Theory of Imperfect Perception

Andrew Caplin and Daniel Martin

No 17163, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We introduce a rational choice theory that allows for many forms of imperfect perception, including failures of memory, selective attention, and adherence to simplifying rules of thumb. Despite its generality, the theory has strong, simple, and intuitive implications for standard choice data and for more enriched choice data. The central assumption is rational expectations: decision makers understand the relationship between their perceptions, however limited they may be, and the (stochastic) consequences of their available choices. Our theory separately identifies two distinct "framing" effects: standard effects involving the layout of the prizes (e.g. order in a list) and novel effects relating to the information content of the environment (e.g. how likely is the first in the list to be the best). Simple experimental tests both affirm the basic model and confirm the existence of information-based framing effects.

JEL-codes: D01 D03 (search for similar items in EconPapers)
Date: 2011-06
New Economics Papers: this item is included in nep-exp, nep-hpe and nep-upt
Note: TWP
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Citations: View citations in EconPapers (15)

Published as Caplin, Andrew, and Daniel Martin (2014), “A Testable Theory of Imperfect Perception,” The Economic Journal, forthcoming.

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Related works:
Journal Article: A Testable Theory of Imperfect Perception (2015)
Working Paper: A Testable Theory of Imperfect Perception (2015)
Working Paper: A Testable Theory of Imperfect Perception (2015)
Working Paper: A Testable Theory of Imperfect Perception (2013)
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