Shortlisting with a Limited Capacity*

A decision maker, who is overwhelmed by the number of available alternatives, limits her consideration. We investigate a model where a decision maker’s capacity determines whether she is overwhelmed or not: she considers all the available alternatives if the number of available alternatives does not exceed her capacity; otherwise, she applies the shortlisting heuristic to reduce the number of alternatives to be within her capacity. We show how one can deduce both the decision maker’s capacity, preference and the alternatives to which she considers from the observed behavior. Further, we provide the necessary and sufficient conditions for a consideration set to be derived by the choice with limited capacity. (JEL D01)