American Economic Review: Vol. 104 No. 5 (May 2014)


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Stochastic Choice: An Optimizing Neuroeconomic Model

Article Citation

Woodford, Michael. 2014. "Stochastic Choice: An Optimizing Neuroeconomic Model." American Economic Review, 104(5): 495-500.

DOI: 10.1257/aer.104.5.495


A model is proposed in which stochastic choice results from noise in cognitive processing rather than random variation in preferences. The mental process used to make a choice is nonetheless optimal, subject to a constraint on available information-processing capacity that is motivated by neurophysiological evidence. The optimal information-constrained model is found to offer a better fit to experimental data on choice frequencies and reaction times than either a purely mechanical process model of choice (the drift-diffusion model) or an optimizing model with fewer constraints on feasible choice processes (the rational inattention model).

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Woodford, Michael (Columbia U)

JEL Classifications

D11: Consumer Economics: Theory
D87: Neuroeconomics

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