A reference-dependent representation with subjective tastes
AbstractExperimental and empirical evidence documents instances where the presence of an inferior option in a menu increases the attractiveness of the better options from that menu and thus distorts the normative ranking across menus. We analyze the case when in addition to this so called context-effects bias there is also a concern for flexibility, in the spirit of the literature initiated by Kreps (1979) and Dekel et al. (2001). Since the context-effects bias and the desire for flexibility both increase the inclination of a decision maker to choose larger menus, our analysis allows the disentangling of the effect of the behavioral bias from the effect of the rational desire from flexibility. We find a weak condition on the set of ex post preferences under which the two effects are identifiable. We show that our representation is essentially unique. From a methodological viewpoint, our paper provides a novel technique of identifying probabilities on the state space of subjective uncertainty introduced by Dekel et al. (2001) when this state space is infinite. This method renders the infinite state space essentially finite with respect to a certain salient property.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Mathematical Economics.
Volume (Year): 49 (2013)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/jmateco
Context effects; Reference point bias; Subjective uncertainty;
Other versions of this item:
- Barbos, Andrei, 2010. "A Reference Dependent Representation with Subjective Tastes," MPRA Paper 23850, University Library of Munich, Germany, revised 02 Feb 2010.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 2005.
Boston University - Department of Economics - Working Papers Series
WP2005-005, Boston University - Department of Economics.
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