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Theory and Decision

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31.08.2017

Rationality with preference discovery costs

verfasst von: Matthew S. Wilson

Erschienen in: Theory and Decision | Ausgabe 2/2018

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Abstract

Economic theory assumes that preferences are rational. However, experiments have found small violations of transitivity. This paper develops a model of rationality with preference discovery costs. Introspection is costly. Thus, agents may find it optimal to use less than full effort, even though this raises the risk of making a poor choice. This model could potentially explain the intransitivities observed in the data while retaining rationality and optimization.

Vorheriger Artikel Two simple characterizations of the Nash bargaining solution

Nächster Artikel On nonexistence of reconsideration-proof equilibrium with state variables

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Note that even if this belief about the distribution was correct and the agent was aware of this, it would still be impossible to recover the utility function. Knowledge of \(u( {x^{*}( {p,w} )} )-u( {x( {p,w,d} )} )\) does not imply knowledge of u(x).

Exception: picking N on both budget lines.

Even if the consumer did use enough effort to perfectly determine his preferences, consumption could still be modeled as a random variable. It would simply have a degenerate distribution.

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Titel: Rationality with preference discovery costs
verfasst von: Matthew S. Wilson
Publikationsdatum: 31.08.2017
Verlag: Springer US
Erschienen in: Theory and Decision / Ausgabe 2/2018
Print ISSN: 0040-5833
Elektronische ISSN: 1573-7187
DOI: https://doi.org/10.1007/s11238-017-9628-6

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