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Choice Architecture

Updated: Jan 11, 2023

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. 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. 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.

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