Decision Making Under Costly Search

Harish Guda


Choice Models 101

Choice models – the theory that studies how individual decision makers (e.g., consumers) make decisions when faced with a collection of alternatives – is of interest to several research disciplines. The canonical choice model is as follows.

This is what is taught in a typical undergraduate ECON course.

Reality is (Slightly) Different

While a number of applications fit the above assumption (reasonably well), it is virtually impossible for a single decision-maker to know everything about every alternative he evaluates. A central assumption – that the decision-maker knows \(U_i\) for each \(i\) – feels like a stretch.

This got me thinking about how I evaluate alternatives, especially in situations where I know very little about these alternatives. Two example fit this situation very well in my own life.

  1. Here, \([N]\) denotes the set \(\{1, 2, \ldots, N\}\).↩︎

  2. Or proposes a model of \(v_i\).↩︎

  3. This simplification is due to the property that i.i.d Gumbels are closed under addition.↩︎