Take-the-Best and Other Simple Strategies: Why and When They Work Well in Binary Choice

Universitat Pompeu Fabra DEE Working Paper No. 709

66 Pages Posted: 4 Jan 2004

See all articles by Robin M. Hogarth

Robin M. Hogarth

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Natalia Karelaia

INSEAD - Decision Sciences

Date Written: October 2003

Abstract

The effectiveness of decision rules depends on characteristics of both rules and environments. A theoretical analysis of environments specifies the relative predictive accuracies of the lexicographic rule "take-the-best" (TTB) and other simple strategies for binary choice. We identify three factors: how the environment weights variables; characteristics of choice sets; and error. For cases involving from three to five binary cues, TTB is effective across many environments. However, hybrids of equal weights (EW) and TTB models are more effective as environments become more compensatory. In the presence of error, TTB and similar models do not predict much better than a naïve model that exploits dominance. We emphasize psychological implications and the need for more complete theories of the environment that include the role of error.

Keywords: Decision making, bounded rationality, lexicographic rules

JEL Classification: D81, M10

Suggested Citation

Hogarth, Robin M. and Karelaia, Natalia, Take-the-Best and Other Simple Strategies: Why and When They Work Well in Binary Choice (October 2003). Universitat Pompeu Fabra DEE Working Paper No. 709, Available at SSRN: https://ssrn.com/abstract=483502 or http://dx.doi.org/10.2139/ssrn.483502

Robin M. Hogarth (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
34 93 542 2561 (Phone)
34 93 542 1746 (Fax)

Natalia Karelaia

INSEAD - Decision Sciences ( email )

United States

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