Coarse, efficient decision-making

Seminari Theory-Experimental

Michael Mandler

Royal Holloway College, University of London

12-Feb-2018

Seminar 3 – 14:30

To achieve efficiency in decision-making, an agent should use coarse criteria with a small number of categories to discriminate among alternatives. Coarse criteria reduce decision-making cost even though an agent, to maintain the number of choice distinctions, must use more criteria. The most efficient criteria are binary with two categories each, even in cases where the marginal cost of using additional categories diminishes to 0. That coarse criteria are used in practice can therefore be explained as a result of optimization rather than cognitive limitations. Binary criteria also generate choice functions that maximize rational preferences, thus linking efficiency to rational choice. The efficiency-of-binary-criteria principle applies to information storage: binary digits store information more efficiently than k-ary digits for any k > 2