Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Jul, 1991, Volume 59, Issue 4

How to Decide How to Decide How to ...: Modeling Limited Rationality<1105:HTDHTD>2.0.CO;2-F
p. 1105-1125

Barton L. Lipman

It seems inconsistent to model boundedly rational action choice by assuming that the agent chooses the optimal decision procedure. This criticism is not avoided by assuming that he chooses the optimal procedure to choose a procedure to ... to choose an action. I show that, properly interpreted, this regress, continued transfinitely, generates a model representing the agent's perception of all his options including every way to refine his perceptions. In this model, the agent surely must choose the perceived best option. Hence it is not inconsistent to model limited rationality by assuming that the agent uses the "optimal" decision procedure.

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