When and how to satisfice: an experimental investigation

This paper is about satisficing behaviour. Rather tautologically, this is when decision-makers are satisfied with achieving some objective, rather than in obtaining the best outcome. The term was coined by Herbert Simon in 1955, and has stimulated many discussions and theories. Prominent amongst these theories are models of incomplete preferences, models of behaviour under ambiguity, theories of rational inattention, and search theories. Most of these, however, seem to lack an answer to at least one of two key questions: when should the decision-maker (DM) satisfice; and how should the DM satisfice. In a sense, search models answer the latter question (in that the theory tells the DM when to stop searching), but not the former; moreover, usually the question as to whether any search at all is justified is left to a footnote. A recent paper by Manski (2017) fills the gaps in the literature and answers the questions: when and how to satisfice? He achieves this by setting the decision problem in an ambiguous situation (so that probabilities do not exist, and many preference functionals can therefore not be applied) and by using the Minimax Regret criterion as the preference functional. The results are simple and intuitive. This paper reports on an experimental test of his theory. The results show that some of his propositions (those relating to the ‘how’) appear to be empirically valid while others (those relating to the ‘when’) are less so

How Do People Choose? An Experimental Investigation of Models of ‘Sub-optimal’ Decision Making.

This research experimentally tests some recent theories of ‘sub-optimal’ behaviour in individual decision making. The first chapter experimentally tests a theory by Manski (2017), addressed to explaining ‘satisficing’ behaviour. He addresses two key questions: when should the decision-maker (DM) satisfice?; and how should the DM satisfice? The theoretical results are simple and intuitive; we have tested them experimentally. Our results show that some of his propositions (those relating to the ‘how’) appear to be empirically valid while others (those relating to the ‘when’) are less so. The second chapter tests two ‘limited attention’ theories, namely, those of Masatlioglu et al (2012), and Lleras et al (2017). These theories are built upon axioms which are weakenings of WARP and are experimentally testable using standard choice data. We found that one weakening is a more plausible weakening of WARP than the other. The third chapter involves the concept of salience. Leland and Schneider (2016) proposes axioms of salience perception. We experimentally test these. We also test the implications of these axioms for risky choice as encapsulated in their SWUP model. The results show general support for the axioms; while those from the implication section show some support for the CARA SWUP model, in that, for the majority of the subjects, SWUP fitted better than EU