Individual Rationality under Cognitive Limitations: The Effect of Sequential Elimination (Job Market Paper)
Abstract: I study individual consistency with preference maximization by examining two choice procedures: namely, the direct procedure, where people choose directly from the menu, and the sequential elimination procedure, where they sequentially eliminate alternatives until only one survives. In a limited attention framework, I show that, in sequential elimination, the choices made by a decision maker faced with at least two available alternatives are consistent with preference maximization, whereas this is not necessarily the case in the direct procedure. To test empirically whether sequential elimination facilitates consistency, I implement an experiment in which subjects are randomly assigned to a risky decision-making task involving one of the two procedures. I find evidence that sequential elimination leads to an economically meaningful improvement in the consistency of subjects with low cognitive ability. Next, I explore the factors that influence individual preference for sequential elimination. Finally, I investigate the impacts of sequential elimination on risk preferences and individual satisfaction.
Making Decisions by Seeing or Hearing? The Role of Basic Senses on Economic Rationality (with Fadong Chen)
Abstract: Human choice behavior primarily depends on two basic senses: seeing and hearing. However, there is little research on whether decision-making through these two senses can have different economic consequences. This paper examines this question with respect to economic rationality. We design and implement a controlled laboratory experiment where subjects are randomly assigned to make decisions by hearing or by seeing the options. We find that making decisions by hearing, compared to by seeing, leads to severe impairment in economic rationality. We also find that subjects spend more time deciding when hearing the options than when seeing the options. Furthermore, subjects, especially females, reveal lower risk aversion when making decisions by hearing than by seeing. Our results highlight the importance of basic senses in economic decision-making.
Dynamic Stochastic Consideration
Abstract: I study stochastic consideration in the context of dynamic choice problems. I introduce new axioms to the framework of Manzini and Mariotti (2014). The decision maker chooses the best alternative from a subset of all feasible alternatives, i.e., consideration set. The decision maker considers each feasible alternative with a probability, which increases if the alternative was chosen in history. I show that the decision maker's preference relation and the dynamic stochastic consideration are uniquely identified with sufficient conditions on a dynamic stochastic choice data set. I propose an experimental design to test the implications of the model.
A Simple Procedure to Facilitate The Prioritization of Important Tasks
Abstract: It is commonly observed that individuals face multiple tasks yet fail to prioritize tasks with important economic consequences. I study how to facilitate the prioritization of important tasks by a simple framework of dynamic decision-making. I show that a decision maker prioritizes important tasks by the task decomposition procedure. To test the implications, I design an experiment in which the task decomposition procedure is either provided or not.