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Order-k Rationality

Author

Listed:
  • Salvador Barberà

    (Universitat Autònoma de Barcelona. Barcelona GSE)

  • Geoffroy De Cleppel

    (Brown University)

  • Alejandro Neme

    (Universidad Nacional de San Luis. CONICET)

  • Kareen Rozeen

    (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 natu- ral 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 Cleppel & Alejandro Neme & Kareen Rozeen, 2020. "Order-k Rationality," Working Papers 4, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:4
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    References listed on IDEAS

    as
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    JEL classification:

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

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