Bounded Rationality and Limited Datasets

34 Pages Posted: 9 Mar 2012 Last revised: 28 May 2014

See all articles by Geoffroy de Clippel

Geoffroy de Clippel

Brown University - Department of Economics

Kareen Rozen

Brown University - Department of Economics

Date Written: May 27, 2014

Abstract

Theories of bounded rationality are typically characterized over an exhaustive data set. How does one tell whether observed choices are consistent with a theory if the data is incomplete? How can out-of-sample predictions be made? What can be identified about preferences? This paper aims to operationalize some leading bounded rationality theories when the available data is limited, as is the case in most practical settings. We also point out that the recent bounded rationality literature has overlooked a methodological pitfall that can lead to 'false positives' and 'empty' out-of-sample predictions when testing choice theories with limited data.

Keywords: Bounded rationality, Limited datasets

JEL Classification: D01

Suggested Citation

de Clippel, Geoffrey and Rozen, Kareen, Bounded Rationality and Limited Datasets (May 27, 2014). Cowles Foundation Discussion Paper No. 1853. Available at SSRN: https://ssrn.com/abstract=2018463

Geoffrey De Clippel

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

Kareen Rozen (Contact Author)

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

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