Two-stage boundedly rational choice procedures: Theory and experimental evidence

We study and test a class of boundedly rational models of decision making which rely on sequential eliminative heuristics. We formalize two sequential decision procedures, both inspired by plausible models popular among several psychologists and marketing scientists. However we follow a standard ‘revealed preference’ economic approach by fully characterizing these procedures by few, simple and testable conditions on observed choice. Then we test the models (as well as the standard utility maximization model) with experimental data. We find that the large majority of individuals behave in a way consistent with one of our procedures, and inconsistent with the utility maximization model. ∗Department of Economics, Queen Mary, University of London, Mile End Road, London E1 4NS (tel: 020-7882 5083; e-mail: [email protected], http://www.qmul.ac.uk/ ̃ugte172). †Department of Economics, Queen Mary, University of London, Mile End Road, London E1 4NS (tel: 020-7882 5094; e-mail: [email protected], http://www.qmul.ac.uk/ ̃tew040). ‡Corresponding address: Department of Economics, Queen Mary, University of London, Mile End Road, London E1 4NS, United Kingdom. Part of this work was carried out while Manzini and Mariotti were visiting the University of Trento, and funding for the experiments was provided by the ESRC under grant RES-000-22-0866. We wish to thank both institutions for their support. We are also grateful to Luigi Mittone, Daniel Read and Nick Vriend for insightful discussions and comments, as well as to the tireless staff of the CEEL lab in Trento, in particular to Marco Tecilla for superb programming support. All errors are our own.