Review of Behavioral Economics > Vol 11 > Issue 3

Procedurally Justifiable Strategies: Integrating Context Effects into Multistage Decision Making

Fynn Kemper, Department of Economics, University of Rostock, Germany, fynn.kemper@gmx.net , Philipp C. Wichardt, Department of Economics, University of Rostock, Kiel Institute for the World Economy, CESifo Munich, Germany, and Department of Economics, Lund University, Sweden, philipp.wichardt@uni-rostock.de
 
Suggested Citation
Fynn Kemper and Philipp C. Wichardt (2024), "Procedurally Justifiable Strategies: Integrating Context Effects into Multistage Decision Making", Review of Behavioral Economics: Vol. 11: No. 3, pp 313-347. http://dx.doi.org/10.1561/105.00000192

Publication Date: 08 Jul 2024
© 2024 F. Kemper and P. C. Wichardt
 
Subjects
Behavioral economics,  Experimental economics,  Bounded rationality,  Psychology,  Biases,  Procedural rationality,  Game theory
 
Keywords
JEL Codes: C70, D01, D91
Behavioural inconsistenciescontext effectslimited foresightprocedural decision makingutility
 

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In this article:
Introduction 
Introductory Example 
The Model 
Examples 
Discussion 
Concluding Remarks 
References 

Abstract

This paper proposes a simple framework to model contextual influences on procedural decision making. In terms of utility, we differentiate between monetary payoffs and contextual psychological ones, e.g. deriving from the subjects’ normative frame of reference. Monetary payoffs are treated as common knowledge while psychological payoffs are treated as partly unforeseeable. Regarding behaviour, we assume that players act optimal given their local perception of the game. As perceptions may be incorrect, we do not consider common equilibrium conditions but instead require strategies to be procedurally justifiable. As we argue, various common inconsistencies considered in behavioural economics can be understood as procedurally justifiable behaviour.

DOI:10.1561/105.00000192