Order-k Rationality

27 Pages Posted: 25 Feb 2020

See all articles by Salvador Barberà

Salvador Barberà

Universitat Autònoma de Barcelona

Alejandro Neme

Instituto Nacional de Matemática Pura e Aplicada (IMPA)

Geoffroy de Clippel

Brown University - Department of Economics

Kareen Rozen

Brown University - Department of Economics

Date Written: October 1, 2019

Abstract

A decision maker (DM) may not perfectly maximize her preference over the feasible set. She may feel it is good enough to maximize her preference over a sufficiently large consideration set; or just require that her choice is sufficiently well-ranked (e.g., in the top quintile of options); or even endogenously determine a threshold for what is good enough, based on an initial sampling of the options. Heuristics such as these are all encompassed by a common theory of Order-k Rationality, which relaxes perfect optimization by only requiring choices from a set S to fall within the set’s top k(S) elements according to the DM’s preference ordering. Heuristics aside, this departure from rationality offers a natural way, in the classic ‘as if’ tradition, to gradually accommodate more choice patterns as k increases. We characterize the empirical content of Order-k Rationality (and related theories), and provide a tractable testing method which is comparable to the method of checking SARP.

Suggested Citation

Barberà Sàndez, Salvador and Neme, Alejandro and de Clippel, Geoffrey and Rozen, Kareen, Order-k Rationality (October 1, 2019). Available at SSRN: https://ssrn.com/abstract=3527070 or http://dx.doi.org/10.2139/ssrn.3527070

Salvador Barberà Sàndez

Universitat Autònoma de Barcelona ( email )

Edifici B - Campus Bellaterra
Barcelona, 08193
Spain

Alejandro Neme

Instituto Nacional de Matemática Pura e Aplicada (IMPA) ( email )

Estrada Dona Castorina 110
5700 San Luis, 22460
Argentina

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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