We introduce a new measure of how close a set of choices is to satisfying the observable implications of rationality and apply it to a large, balanced panel of household level consumption data. This new measure, the minimum cost index, is the minimum cost of breaking all revealed preference cycles found in choices from budget sets. Unlike existing measures of rationality, it responds to both the number and severity of revealed preference violations.

We take the perspective of an econometrician who wants to determine which of two experiments provides higher expected utility but only knows the decisions under each experiment. To compare these decisions, the econometrician must make inferences about what the experiment might have been for each set of decisions. We provide a necessary and sufficient condition that identifies when every experiment consistent with one set of decisions has a higher value of information than every experiment consistent with the other set of decisions.

Many everyday decisions are made without full examination of all available options, and, as a result, the best available option may be missed. We develop a search-theoretic choice experiment to study the impact of incomplete consideration on the quality of choices. We find that many decisions can be understood using the satisficing model of Herbert Simon (1955): most subjects search sequentially, stopping when a “satisficing” level of reservation utility is realized. We find that reservation utilities and search order respond systematically to changes in the decision making environment.

The accurate measurement and effective control of financial risk are of crucial importance to risk managers and regulators. However, risk measures are potentially affected by errors in the estimation of model parameters from limited samples, leading to parameter risk. The key contribution of this paper is the formulation of a general framework to hedge this parameter risk. Applying the new framework to credit portfolio modeling, we highlight the importance of parameter risk, estimation methods, and diversification effects.

We study the role of morality in debt repayment, using an experiment with the credit card customers of a large Islamic bank in Indonesia. In our main treatment, clients receive a text message stating that “non-repayment of debts by someone who is able to repay is an injustice.” This moral appeal decreases delinquency by 4.4 percentage points from a baseline of 66 percent and reduces default among customers with the highest ex ante credit risk. Additional treatments help benchmark the effects against direct financial incentives and rule out competing explanations, such as reminder effects, priming religion, and provision of new information.