A Non-Bayesian Approach to (Un)Bounded Rationality

7 Pages Posted: 18 Oct 2007

See all articles by Werner Guth

Werner Guth

Max Planck Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute)

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 of Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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