Clyde, Alexander;
(2025)
Essays on bounded rationality in economic theory.
Doctoral thesis (Ph.D), UCL (University College London).
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Abstract
This thesis consists of three independent chapters. Chapter 1: Proxy Variables and Feedback Effects in Decision Making I propose a framework that models decision makers who naively assume potentially noisy proxy variables are perfect measurements. Due to feedback from choices into data, a notion of equilibrium is required to close the model. In applications of the concept, we see that very small imperfections in the proxy variable can lead to large distortions in beliefs. I show that the set of strategies that can arise as equilibria with arbitrarily close to perfect measurement coincides with the set of Self-Confirming Equilibria. Chapter 2: Narrow Inference and Incentive Design There is evidence that people struggle to do causal inference in complex multidimensional environments. This paper explores the consequences of this in a principal-agent setting. A principal chooses a mechanism to screen an agent. The agent makes choices on multiple dimensions, and infers the effect of each action separately without properly controlling for. the other actions. I fully characterize the principal’s optimal mechanism when facing an agent who does such ‘narrow’ inference, and contrast it with their optimal mechanism when the agent is fully rational. Chapter 3: Pricing for Aspirational Consumers I consider a model of firm pricing for vertically differentiated products when consumers behave according to a model of stochastic aspiration-based choice. I call such consumers aspirational consumers. A monopoly firm facing aspirational consumers may prefer to restrict the line of products it offers. The monopolist may also offer prices that give the aspirational consumer positive utility. These features do not arise when the consumer is an expected utility maximizer. I provide a foundation for the behaviour of an aspirational consumer by adapting the learning model in Gilboa and Schmeidler (1997).
| Type: | Thesis (Doctoral) |
|---|---|
| Qualification: | Ph.D |
| Title: | Essays on bounded rationality in economic theory |
| Open access status: | An open access version is available from UCL Discovery |
| Language: | English |
| Additional information: | Copyright © The Author 2025. Original content in this thesis is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International (CC BY-NC 4.0) Licence (https://creativecommons.org/licenses/by-nc/4.0/). Any third-party copyright material present remains the property of its respective owner(s) and is licensed under its existing terms. Access may initially be restricted at the author’s request. |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL SLASH UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10208649 |
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