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Take-the-best and other simple strategies: Why and when they work 'well' in binary choice
Hogarth, Robin; Karelaia, Natalia
Universitat Pompeu Fabra. Departament d'Economia i Empresa
The effectiveness of decision rules depends on characteristics of bothrules and environments. A theoretical analysis of environments specifiesthe relative predictive accuracies of the lexicographic rule 'take-the-best'(TTB) and other simple strategies for binary choice. We identify threefactors: how the environment weights variables; characteristics of choicesets; and error. For cases involving from three to five binary cues, TTBis effective across many environments. However, hybrids of equal weights(EW) and TTB models are more effective as environments become morecompensatory. In the presence of error, TTB and similar models do not predictmuch better than a naïve model that exploits dominance. We emphasizepsychological implications and the need for more complete theories of theenvironment that include the role of error.
Behavioral and Experimental Economics
decision making
bounded rationality
lexicographic rules
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