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Bounded Rationality as Subjective Menus: Contraction Consistency and Intertemporal Choice

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Authors: Dean Spears

Published in: Social Science Research Network

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Abstract:

How would a boundedly rational agent react to a larger menu? I model bounded rationality as choice from an unobservable, subjective consideration subset. Consideration sets satisfy Sen's (1969) property alpha: larger objective choice sets can generate smaller consideration sets.

In a single-period model, the "weak weak axiom of revealed preference" is represented by such choice; contraction consistency underlies two recent representations of this axiom. The main contribution is a representation of intertemporal choice: sets are as valuable as their subjective subsets. Applications suggest that bounded rationality could explain some phenomena often ascribed to behavioral preferences, including some apparent impatience.

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