Order-k Rationality

SALVADOR BARBERA
GEOROY DE CLIPPEL
ALEJANDRO NEME
KAREEN ROZEN

ON LINE

Congreso; AAEP; 2020

AAEP

A decision maker (DM) may not perfectly maximize her preferenceover the feasible set. She may feel it is good enough to maximize her preferenceover a suciently large consideration set; or just require that her choice is suf-ciently well-ranked (e.g., in the top quintile of options); or even endogenouslydetermine a threshold for what is good enough, based on an initial sampling ofthe options. Heuristics such as these are all encompassed by a common theoryof Order-k Rationality, which relaxes perfect optimization by only requiring choices from a set S to fall within the set's top k(S) elements according tothe DM's preference ordering. Heuristics aside, this departure from rationalityoers a natural way, in the classic `as if' tradition, to gradually accommodatemore choice patterns as k increases. We characterize the empirical contentof Order-k Rationality (and related theories), and provide a tractable testingmethod which is comparable to the method of checking SARP.