Determinants of Boundedly Rational Behavior

Abstract

In Chapter 1 we pointed out that the rationality of subjects is bounded in many respects. Yet, experiments show that their typical behavior is not irrational but is based on reasonable systematic principles. Videotaping subjects’ decisions in our experiment provides us with the unique opportunity to assess regularities in their behavior by direct observation. The aim of our study is an explorative one: it was not designed to test hypotheses on expected outcomes or behavior. Rather, by looking at the actions of experimental subjects we wanted to find out on which, if any, principles people base their decisions. After having learned about the typical determinants of agents’ behavior in our experiment, we found that these principles are well-established in economic, but mainly in psychological literature.