Individual Rationality under Cognitive Limitations: The Effect of Sequential Elimination (Link)
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. I first show formally that, in a limited attention framework, the choices made by a decision maker who considers at least two available alternatives under sequential elimination are consistent with preference maximization, whereas this is not necessarily the case under 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 individual consistency, especially for subjects with low cognitive ability. Next, I investigate the determinants of individual preference for sequential elimination and the impact of sequential elimination on risk preferences. Finally, I discuss the policy implications of the results.
Perceptual Descriptions of Decisions and Their Economic Implications (with Fadong Chen)
Abstract: Human choice behavior depends on the perception of decisions. However, there is little research on the economic consequences of different perceptual descriptions. We implement a randomized controlled experiment to examine how auditory versus visual descriptions of the options influence economic choice behavior. We find that providing auditory descriptions, as compared to visual descriptions, leads to severe impairment in economic rationality and longer response time. In addition, auditory descriptions result in less risk-averse choices than visual descriptions; this is especially significant for females. Our results raise a concern about welfare loss in choice contexts where auditory descriptions play a major role.
Dynamic Stochastic Consideration
A Simple Procedure to Facilitate The Prioritization of Important Tasks