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.
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Independently of each other, Relative Satisficing was proposed and studied in Barberà and Neme (2014), while Minimal Consideration was proposed and studied in a supplement to de Clippel and Rozen (2012). The present paper replaces and goes beyond those earlier discussions of these interesting theories. Salvador Barberà acknowledges financial support from the Spanish Ministry of Economy and Competitiveness, through the Severo Ochoa Programme for Centers of Excellence in R&D (SEV-2015-0563 and CEX2019-000915-S) and Grant ECO2017-83534-P and FEDER, and from the Generalitat de Catalunya, through Grant 2017SGR0711. Alejandro Neme acknowledges financial support received from the UNSL, through Grant 319502, and from the CONICET, through Grant PIP 112-200801-00655, and from AGENCIA, through Grant PICT 2017-2355, and from the Spanish Ministry of Economy and Competitiveness, through Grant ECO2017-83534-P.
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Barberà, S., de Clippel, G., Neme, A. et al. Order-k rationality. Econ Theory 73, 1135–1153 (2022). https://doi.org/10.1007/s00199-021-01350-z
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DOI: https://doi.org/10.1007/s00199-021-01350-z