Satisficing in Financial Decision MakingA Theoretical and Experimental Attempt to ExploreBounded Rationality

In this paper, we apply the bounded rationality approach to aninvestment situation. In a simple setting where an investor decides betweena riskless bond and a risky asset, we distinguish three aspirationlevels: a lowest threshold that one wants to guarantee, an aspirationlevel given by investing all risk-free, and an even higher return levelrepresenting a real success. The ranges for such aspirations are naturallydetermined by the parameters. These three aspirations allow usto classify investors as actual or only potential satisficers, as well asrisk shy or more open to risk. In the experiment, participants are firstasked for their lowest and highest aspiration before investing. Thus,we can test whether they behave as predicted by their aspiration type.By presupposing specific cardinal utility functions, we also comparethe bounded rationality approach to the rational choice-approach.