Choice by Rejection

TL;DR

This paper introduces a boundedly rational choice model where agents eliminate dominated options before making a final decision, capturing realistic decision patterns and allowing for observable reversals in choices.

Contribution

It develops a new two-stage choice model related to the Rational Shortlist Method, providing behavioral characterization and identification of underlying rationales from choice reversals.

Findings

Model allows at most two choice reversals in set inclusion.

Behavioral characterization based on reversals in choice.

Underlying rationales can be identified from observable reversals.

Abstract

We propose a boundedly rational model of choice where agents eliminate dominated alternatives using a transitive rationale before making a choice using a complete rationale. This model is related to the seminal two-stage model of Manzini and Mariotti (2007), the Rational Shortlist Method (RSM). We analyze the model through reversals in choice and provide its behavioral characterization. The procedure satisfies a weaker version of the Weak Axiom of Revealed Preference (WARP) allowing for at most two reversals in choice in terms of set inclusion for any pair of alternatives. We show that the underlying rationales can be identified from the observable reversals in the choice. We also characterize a variant of this model in which both the rationales are transitive