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Order-k rationality

Author

Listed:
  • Salvador Barberà

    (Barcelona GSE and Universitat Autònoma de Barcelona
    Departament d’Economia i d’Història Econòmica)

  • Geoffroy de Clippel

    (Brown University)

  • Alejandro Neme

    (Universidad Nacional de San Luis and CONICET)

  • Kareen Rozen

    (Brown University)

Abstract

A decision maker (DM) may not perfectly maximize her preference over the feasible set. She may feel it is good enough to maximize her preference over a sufficiently large consideration set; or just require that her choice is sufficiently well-ranked (e.g., in the top quintile of options); or even endogenously determine a threshold for what is good enough, based on an initial sampling of the options. Heuristics such as these are all encompassed by a common theory of order-k rationality, which relaxes perfect optimization by only requiring choices from a set S to fall within the set’s top k(S) elements according to the DM’s preference ordering. Heuristics aside, this departure from rationality offers a natural way, in the classic ‘as if’ tradition, to gradually accommodate more choice patterns as k increases. We characterize the empirical content of order-k rationality (and related theories), and provide a tractable testing method which is comparable to the method of checking SARP.

Suggested Citation

  • Salvador Barberà & Geoffroy de Clippel & Alejandro Neme & Kareen Rozen, 2022. "Order-k rationality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(4), pages 1135-1153, June.
    • Handle: RePEc:spr:joecth:v:73:y:2022:i:4:d:10.1007_s00199-021-01350-z
    DOI: 10.1007/s00199-021-01350-z
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    More about this item

    Keywords

    Order-k rationality; Choice heuristics; Satisficing; Limited attention;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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