Order-k Rationality

Salvador Barberà, Geoffroy de Clippel, Alejandro Neme, Kareen Rozen*

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

1 Citation (Scopus)

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.

Original languageEnglish
Article number73
Pages (from-to)1135-1153
Number of pages19
JournalEconomic theory
Volume73
Issue number4
DOIs
Publication statusPublished - 1 Jun 2022

Keywords

  • Choice heuristics
  • D010
  • Limited attention
  • Order-k rationality
  • Satisficing

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