Decision-makers frequently struggle to base their choices on an exhaustive evaluation of all options at stake. This is particularly so when the choice problem at hand is complex, because the available alternatives are hard to compare. Rather than striving to choose the most valuable alternative, in such situations decision-makers often settle for the choice of an alternative which is not inferior to any other available alternative instead. In this paper, we extend two established models of boundedly rational choice, the categorize (...) then choose heuristic and the rational shortlist method, to incorporate this kind of “indecisive” choice behavior. We study some properties of these extensions and provide full behavioral characterizations. (shrink)

We address the oft-repeated criticism that the demands which the rational choice approach makes on the knowledge and cognition of a decision-maker are way beyond the capabilities of typical human intelligence. Our key finding is that it may be possible to arrive at this ideal of rationality by means of cognitively less demanding, heuristic-based ecological reasoning that draws on information about others’ choices in the DM’s environment. Formally, we propose a choice procedure under which, in any choice problem, the DM, (...) first, uses this information to shortlist a set of alternatives. The DM does this shortlisting by a mental process of categorization, whereby she draws similarities with certain societal members—the ingroup—and distinctions from others—the outgroup—and considers those alternatives that are similar to ingroup members’ choices. Then, she chooses from this shortlisted set by applying her preferences, which may be incomplete owing to limitations of knowledge. We show that, if a certain homophily condition connecting the DM’s preferences with her ingroup–outgroup categorization holds, then the procedure never leads the DM to making bad choices. If, in addition, a certain shortlisting consistency condition holds vis-a-vis non-comparable alternatives under the DM’s preferences, then the procedure results in rational choices. (shrink)

We provide a new behavioral foundation for subjective expected utility within the Anscombe–Aumann framework. In contrast to the original axiomatization of SEU, our behavioral foundation establishes that to be consistent with SEU maximization, we need not explicitly assume that preferences satisfy the independence axiom over the domain of all acts. Rather, the substantive implications of independence for an SEU representation may equivalently be derived from less demanding conditions over certain smaller classes of acts. These acts, which we refer to as (...) uncertainty-free comparable acts, have the property that they are relatively simple for a decision maker to compare because she can rank acts within any such class based on her risk preferences alone, without having to consider the underlying uncertainty. Acts of this kind comprise constant acts and acts that are almost identical in the sense that they differ from one another in at most one state. (shrink)