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Affective Decision Making: A Behavioral Theory of Choice

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Author Info
Anat Bracha (Eitan Berglas School of Economics, Tel Aviv University)
Donald J. Brown () (Dept. of Economics, Yale University)
Abstract

Affective decision-making is a strategic model of choice under risk and uncertainty where we posit two cognitive processes — the "rational" and the "emotional" process. Observed choice is the result of equilibirum in this intrapersonal game. As an example, we present applications of affective decision-making in insurance markets, where the risk perceptions of consumers are endogenous. We then derive the axiomatic foundation of affective decision making, and show that, although beliefs are endogenous, not every pattern of behavior is possible under affective decision making.

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File URL: http://cowles.econ.yale.edu/P/cd/d16a/d1633-r.pdf
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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1633R.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 22 pages
Date of creation: Nov 2007
Date of revision: Apr 2009
Handle: RePEc:cwl:cwldpp:1633r

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Related research
Keywords: Affective choice; Endogenous risk perception; Insurance; Variational preferences;

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Find related papers by JEL classification:
D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies

References listed on IDEAS
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    Other versions:
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    Other versions:
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  16. Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-19, June. [Downloadable!] (restricted)
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  18. Abraham Neyman, 1997. "Correlated Equilibrium and Potential Games," International Journal of Game Theory, Springer, vol. 26(2), pages 223-227.
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    Other versions:
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