A Non-Bayesian Approach to (Un)Bounded Rationality

7 Pages Posted: 18 Oct 2007

See all articles by Werner Güth

Werner Güth

Max Planck Institute for Research on Collective Goods; Luiss Guido Carli University

Date Written: July 6, 2007

Abstract

Can one define and test the hypothesis of (un)bounded rationality in stochastic choice tasks without endorsing Bayesianism? Similar to the state specificity of assets, we rely on state-specific goal formation. In a given choice task, the list of state-specific goal levels is optimal if one cannot increase the goal level for one state without having to decrease that for other states. We show that this allows to relate optimality more easily to bounded rationality where we interpret goal levels as aspirations. If for the latter there exist choices satisfying all state-specific aspirations and if one such choice is used, we speak of satisficing which may or may not be optimal.

Keywords: satisficing, bounded rationality, optimality

JEL Classification: B4, D81, D10

Suggested Citation

Güth, Werner, A Non-Bayesian Approach to (Un)Bounded Rationality (July 6, 2007). Jena Economic Research Paper No. 2007-035, Available at SSRN: https://ssrn.com/abstract=1021181

Werner Güth (Contact Author)

Max Planck Institute for Research on Collective Goods

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

Luiss Guido Carli University ( email )

Via O. Tommasini 1
Rome, Roma 00100
Italy

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