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BOK Working Paper No.2020-21, A Model of Satisficing Behaviour

Economic Research Institute (82-2-759-5435) 2020.10.13 2538

Title : A Model of Satisficing Behaviour

Author : Rajiv Sarin(University of Exeter), Hyun Chang Yi(BOK)


We build a model of satisficing behaviour. We explicitly introduce the value the decision maker “expects” from an action, where this expectation is adaptively formed. This valuation of an action is differentiated from her satisficing level which is taken to be the value the agent “expects” from her outside option. If the valuation is higher than her satisficing level she continues with the current action, updating her valuation of the action. If she receives a low payoff and her valuation of the action falls below her satisficing level, she updates her satisficing level downward the valuation and explores an alternative action. And, she occasionally experiences shocks on her satisficing level and choice of action. We show that in individual decision problems, satisficing behaviour results in cautious, maximin choice. In games like the Prisoner's Dilemma and Stag Hunt, they in the long run play either cooperative or defective outcomes and in a class of coordination games, they coordinate on Pareto optimal outcomes.