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Similarity-Based Mistakes in Choice

Author

Listed:
  • Fernando Payro

    (Centro de Investigación Económica (CIE), Instituto Tecnológico Autónomo de México (ITAM))

  • Levent Ülkü

    (Centro de Investigación Económica (CIE), Instituto Tecnológico Autónomo de México (ITAM))

Abstract

We characterize the following choice procedure. The decision maker is endowed with a preference and a similarity - a reflexive binary relation over alternatives. In any choice problem she includes in her choice set all options that are similar to her most preferred feasible alternative. Hence an inferior option may end up,by mistake, being chosen because it is similar to a better one. We characterize this boundedly rational behavior by suitably weakening the rationalizability axiom of Arrow (1959). We also characterize a generalization where the decision maker chooses alternatives potentially on the basis of their similarities to attractive yet infeasible alternatives. We show that if similarity-based mistakes cause a departure from rationalizability, they lead to cyclical behavior.

Suggested Citation

  • Fernando Payro & Levent Ülkü, 2015. "Similarity-Based Mistakes in Choice," Working Papers 1503, Centro de Investigacion Economica, ITAM.
    • Handle: RePEc:cie:wpaper:1503
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    References listed on IDEAS

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    1. Christopher P. Chambers & M. Bumin Yenmez, 2017. "Choice and Matching," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 126-147, August.
    2. Paola Manzini & Marco Mariotti, 2007. "Sequentially Rationalizable Choice," American Economic Review, American Economic Association, vol. 97(5), pages 1824-1839, December.
    3. Yusufcan Masatlioglu & Daisuke Nakajima & Erkut Y. Ozbay, 2012. "Revealed Attention," American Economic Review, American Economic Association, vol. 102(5), pages 2183-2205, August.
    4. Gent Bajraj & Levent Ülkü, 2015. "Choosing two finalists and the winner," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 45(4), pages 729-744, December.
    5. Rubinstein, Ariel, 1988. "Similarity and decision-making under risk (is there a utility theory resolution to the Allais paradox?)," Journal of Economic Theory, Elsevier, vol. 46(1), pages 145-153, October.
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    Cited by:

    1. Kops, Christopher, 2022. "Cluster-shortlisted choice," Journal of Mathematical Economics, Elsevier, vol. 102(C).

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    JEL classification:

    • D0 - Microeconomics - - General

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