Updated: Jan 11
The starting point for micro-economics is the hypothesis that individuals make
choices consistent with well defined goals subject to resource constraints.
Section of 3.2.1 of AM (Advanced Microeconomics) makes the point that the rational
choice hypothesis constrains the set of possible behaviors (exercise 3.1
asks he reader to compute the number of possible behaviors given available choices).
What is left out of the model is the construction of the ranking. As it turns
out there is a growing body of evidence that such a construction is difficult.
The recent book, The Elements of Choice, 2021, by Eric Johnson is a brilliant
review of the recent research on choice architecture. He discusses how in
practice, the way choices are presented to a person affect their decisions,
which in turn has profound implications in many areas, including on-line sites
and physician decision making. Example of this exciting new research includes
Brady and Rehbeck, 2016, Menu-Dependent Stochastic Feasibility. Econometrica 84,
1203–1223. https://doi.org/10.3982/ECTA12694 generalize the random consideration
set rule of Mansini and Mariotti to allow for random feasibility in a person's
choice set. Recently, Abaluck, Jason, and Abi Adams-Prassl. 2021. “What Do
Consumers Consider Before They Choose? Identification from Asymmetric Demand
Responses.” The Quarterly Journal of Economics 136 (3): 1611–63.
https://doi.org/10.1093/qje/qjab008 show how to empirically implement this class
of models with scanner data.
These are examples of how we are making real progress on developing realistic
and empirically relevant models of individual choice that move beyond
the standard rational choice model.