Choice by Iterative Search

In many real-life decisions, either information about alternatives is missing, or decision makers have limited cognitive capacity to go through all alternatives. To capture these situations, we propose and axiomatically characterize a new descriptive search model in which a decision maker explores her budget set (unlike the standard model) and has a stable preference (as in the standard model). In this boundedly rational model, she does not compare one option with all available alternatives, instead she proceeds through a path-dependent sequence of “consideration sets” until she no longer wishes to change her mind. Our model provides a unifying explanation for a number of seemingly irrational behavior without introducing changing preferences. In addition, unlike other boundedly rational choice procedures, our method is amenable to welfare analysis