Economic Rationality under Cognitive Limitations: The Effect of Sequential Elimination

Participants are randomly assigned to one of three treatments, each distinguished by the choice procedure used in the first part of the experiment.

2025-12-08

2026-01-31

Choice consistency

Our principal measure of economic rationality is choice consistency, defined as a binary variable equal to 1 if a participant’s choices satisfy the Generalized Axiom of Revealed Preference (GARP), a necessary and sufficient condition for consistency with preference maximization (Afriat, 1967; Varian, 1982). Guided by our theoretical framework, we pre-register the following hypothesis:

Hypothesis 1: Sequential elimination improves choice consistency relative to the direct procedure among individuals with cognitive limitations.

We test this hypothesis by contrasting Sequential Elimination and the Direct Procedure treatments among low-IQ participants (those scoring at or below the sample median), who serve as our primary proxy for individuals with cognitive limitations. To capture the extent of deviations from rationality, we pre-register the Houtman–Maks Index (HMI, Houtman and Maks, 1985) as a discrete metric. The HMI is defined as the minimum number of choices that must be removed to achieve consistency, with removed choices typically interpreted as mistakes. As robustness measures, we employ the number of GARP violations and stricter variants of these measures that impose first-order stochastic dominance (FSD). These measures offer complementary assessments of sequential elimination, varying in stringency and granularity. The Supplementary Materials report the minimum detectable effects for all measures, providing a comprehensive account of design sensitivity.

References:
Afriat, Sidney N. 1967. “The Construction of Utility Functions from Expenditure Data.” International Economic Review 8 (1): 67–77.
Houtman, Martijn, and Julian Maks. 1985. “Determining All Maximal Data Subsets Consistent with Revealed Preference.” Kwantitatieve Methoden 19 (1): 89–104.
Varian, Hal R. 1982. “The Nonparametric Approach to Demand Analysis.” Econometrica 50 (4): 945–973.

Effects by attentional deficits (mechanism); response time and deliberation time; elimination behavior.

To isolate the underlying mechanism, we examine whether Sequential Elimination improves economic rationality (as captured by choice consistency and the HMI) relative to the Direct Procedure among participants with higher attentional deficits (those scoring at or above the sample median on the ASRS inattention subscale), as our secondary proxy for cognitive limitations.

As a supplementary analysis, we test for treatment effects in the full sample and using the full ASRS scale. Additionally, we contrast Sequential Elimination with the Minimum-Time Procedure to investigate whether the effect of the former persists when response times are comparable. We also measure deliberation time as the interval until the final click on any option, to evaluate whether imposing a simple time requirement influences deliberation and, in turn, choice consistency. Finally, we analyze elimination behavior under Sequential Elimination to explore systematic patterns that may account for its effect.

The experiment consists of three parts. In the first, participants make economic decisions under their assigned treatment. In the second, they complete a series of cognitive tasks. In the third, they complete a set of questionnaires assessing attitudes toward inconsistency, attentional traits, and demographic characteristics.

Not available

Randomization is implemented via Qualtrics.

Individual

No

N/A

We target 600 participants (200 per treatment arm) in the final analytic sample. Anticipating a 5% exclusion rate due to failing the decision-problem check, we will recruit 630 participants, with additional recruitment if needed to reach the target.

200 participants per treatment arm. Based on the median split, this yields an internal target of 100 low-IQ participants per treatment arm.

Power is evaluated via simulation using pilot data. We target 80% power at a two-sided 5% significance level for the primary test on choice consistency, comparing Sequential Elimination with the Direct Procedure among low-IQ participants. We simulate 10,000 independent datasets per candidate effect size, with 100 low-IQ participants per treatment arm, preserving the empirical distribution of choice consistency observed in the Direct Procedure. Under this design, the minimum detectable effect of Sequential Elimination on choice consistency is a log-odds ratio of 0.782 (corresponding to an odds ratio of 2.186), implying an increase of 19.3 percentage points (from 0.412 to 0.605).