Choice by Iterative Search

Posted: 27 Apr 2009

See all articles by Yusufcan Masatlioglu

Yusufcan Masatlioglu

University of Michigan

Daisuke Nakajima

University of Michigan at Ann Arbor; Otaru University of Commerce

Date Written: April 26, 2009

Abstract

In many real-life decisions, either information about alternatives is missing, or decision makers have limited cognitive capacity to go through all alternatives. To capture these situations, we propose and axiomatically characterize a new descriptive search model in which a decision maker explores her budget set (unlike the standard model) and has a stable preference (as in the standard model). In this boundedly rational model, she does not compare one option with all available alternatives, instead she proceeds through a path-dependent sequence of “consideration sets” until she no longer wishes to change her mind. Our model provides a unifying explanation for a number of seemingly irrational behavior without introducing changing preferences. In addition, unlike other boundedly rational choice procedures, our method is amenable to welfare analysis.

Keywords: Search, Satisficing, Bounded Rationality, Consideration Set, Endogenous Reference-Dependent Choice, Revealed Preferences

JEL Classification: D11, D81

Suggested Citation

Masatlioglu, Yusufcan and Nakajima, Daisuke, Choice by Iterative Search (April 26, 2009). Available at SSRN: https://ssrn.com/abstract=1395284

Yusufcan Masatlioglu (Contact Author)

University of Michigan ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

Daisuke Nakajima

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Otaru University of Commerce ( email )

3-5-21 Midori
Otaru-shi, Hokkaido 047-8501
United States

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