Coarse Decision Making

We study decision makers who willingly forgo acts that finely vary with states, even though these acts are informationally and technologically feasible. They opt instead for coarse rules that are less sensitive to state by state variations. We model this coarse decision making as a consequence of individuals using classical, frequentist methods to draw robust inferences from scarce data. Our central theme is that coarse decision making arises to mitigate the problem of over-fitting the data. The main implication of this framework is behavior that is biased towards simplicity: decision makers choose models, or decision frames that are statistically simple, in a sense we make precise. We are also able to give a unified interpretation of many seemingly anomalous cognitive and decision making procedures, such as categorization, reliance on linear orders, and satisficing. ∗ Department of Managerial Economics and Decision Sciences, Kellogg School of Management, Northwestern University, Evanston IL 60208. E-mail: . Research page : http://www.kellogg.northwestern.edu/faculty/alnajjar/htm/index.htm † Department of Managerial Economics and Decision Sciences, Kellogg School of Management, Northwestern University, Evanston IL 60208. E-mail: . Research page : http://www.kellogg.northwestern.edu/faculty/pai/