Boundedly rational expected utility theory |
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Authors: | Navarro-Martinez Daniel Loomes Graham Isoni Andrea Butler David Alaoui Larbi |
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Institution: | 1.Department of Economics and Business, Pompeu Fabra University, Ramon Trias Fargas 25-27, 08005, Barcelona, Spain ;2.Barcelona Graduate School of Economics, Barcelona, Spain ;3.Warwick Business School, University of Warwick, Coventry, CV4 7AL, UK ;4.University of Cagliari, Cagliari, Italy ;5.Department of Accounting, Finance and Economics, Griffith Business School, Griffith University, Gold Coast, QLD, Australia ; |
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Abstract: | We build a satisficing model of choice under risk which embeds Expected Utility Theory (EUT) into a boundedly rational deliberation process. The decision maker accumulates evidence for and against alternative options by repeatedly sampling from her underlying set of EU preferences until the evidence favouring one option satisfies her desired level of confidence. Despite its EUT core, the model produces patterns of behaviour that violate standard EUT axioms, while at the same time capturing systematic relationships between choice probabilities, response times and confidence judgments, which are beyond the scope of theories that do not take deliberation into account. |
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