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American Economic Review: Vol. 101 No. 2 (April 2011)
AER Volume. 101, Issue 2 | 
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Procedural Analysis of Choice Rules with Applications to Bounded Rationality
Article Citation
Salant, Yuval. 2011. "Procedural Analysis of Choice Rules with Applications to Bounded Rationality."
American Economic Review,
101(2): 724-48.
DOI: 10.1257/aer.101.2.724
DOI: 10.1257/aer.101.2.724
Abstract
I study how limited abilities to process information affect choice behavior. I model the decision-making process by an automaton, and measure
the complexity of a specific choice rule by the minimal number of states an automaton implementing the rule uses to process information. I establish that any choice rule that is less complicated than utility maximization displays framing effects. I then prove that choice rules that result from an optimal trade-off between maximizing utility and minimizing complexity are history-dependent satisficing procedures
that display primacy and recency effects. (JEL D01, D03, D11, D83)
Article Full-Text Access
Full-text Article
Authors
Salant, Yuval (Northwestern U)
JEL Classifications
D01: Microeconomic Behavior: Underlying Principles
D03: Behavioral Economics: Underlying Principles
D11: Consumer Economics: Theory
D83: Search; Learning; Information and Knowledge; Communication; Belief
D03: Behavioral Economics: Underlying Principles
D11: Consumer Economics: Theory
D83: Search; Learning; Information and Knowledge; Communication; Belief
