Ignoring information in binary choice with continuous variables: When is less 'more'?

Robin Hogarth () and Natalia Karelaia

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: When can a single variable be more accurate in binary choice than multiple sources of information? We derive analytically the probability that a single variable (SV) will correctly predict one of two choices when both criterion and predictor are continuous variables. We further provide analogous derivations for multiple regression (MR) and equal weighting (EW) and specify the conditions under which the models differ in expected predictive ability. Key factors include variability in cue validities, intercorrelation between predictors, and the ratio of predictors to observations in MR. Theory and simulations are used to illustrate the differential effects of these factors. Results directly address why and when “one-reason” decision making can be more effective than analyses that use more information. We thus provide analytical backing to intriguing empirical results that, to date, have lacked theoretical justification. There are predictable conditions for which one should expect “less to be more.”

Keywords: Decision making; bounded rationality; lexicographic rules; choice theory; Leex (search for similar items in EconPapers)
JEL-codes: D81 M10 (search for similar items in EconPapers)
Date: 2004-02, Revised 2004-10
New Economics Papers: this item is included in nep-cbe and nep-dcm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:742

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