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A Reference Dependent Representation with Subjective Tastes

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  • Barbos, Andrei

Abstract

Experimental 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 besides 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, Lipman and Rustichini (2001). Since the context effects bias and the desire for flexibility both increase the inclination of a decision maker to choose larger menus, the 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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23850.

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Date of creation: 14 Mar 2010
Date of revision: 02 Feb 2010
Handle: RePEc:pra:mprapa:23850

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Keywords: Context Effects; Reference Point Bias; Subjective Uncertainty;

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  1. Igor Kopylov & Jawwad Noor, 2009. "Self-Deception and Choice," Levine's Working Paper Archive 814577000000000319, David K. Levine.
  2. William Neilson, 2006. "Axiomatic reference-dependence in behavior toward others and toward risk," Economic Theory, Springer, vol. 28(3), pages 681-692, 08.
  3. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 2006. "Temptation–Driven Preferences," Boston University - Department of Economics - Working Papers Series WP2006-024, Boston University - Department of Economics.
  4. Kalyan Chatterjee & R. Krishna, 2011. "On preferences with infinitely many subjective states," Economic Theory, Springer, vol. 46(1), pages 85-98, January.
  5. Kreps, David M, 1979. "A Representation Theorem for "Preference for Flexibility"," Econometrica, Econometric Society, vol. 47(3), pages 565-77, May.
  6. Dekel, Eddie & Lipman, Barton L & Rustichini, Aldo, 2001. "Representing Preferences with a Unique Subjective State Space," Econometrica, Econometric Society, vol. 69(4), pages 891-934, July.
  7. Epstein, Larry G. & Kopylov, Igor, 2007. "Cold feet," Theoretical Economics, Econometric Society, vol. 2(3), September.
  8. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers 99f1, Economics Department, Princeton University.
  9. Eddie Dekel & Barton L Lipman & Aldo Rustichini & Todd Sarver, 2007. "Representing Preferences with a Unique Subjective State Space: A Corrigendum -super-1," Econometrica, Econometric Society, vol. 75(2), pages 591-600, 03.
  10. Eddie eckel & Barton L Lipman & Aldo Rustichini & Todd Sarver, 2005. "Representing Preferences with a Unique Subjective State Space: Corrigendum," Boston University - Department of Economics - Working Papers Series WP2005-042, Boston University - Department of Economics.
  11. Huber, Joel & Payne, John W & Puto, Christopher, 1982. " Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis," Journal of Consumer Research, University of Chicago Press, vol. 9(1), pages 90-98, June.
  12. Todd Sarver, 2008. "Anticipating Regret: Why Fewer Options May Be Better," Econometrica, Econometric Society, vol. 76(2), pages 263-305, 03.
  13. Barbos, Andrei, 2010. "Context effects: A representation of choices from categories," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1224-1243, May.
  14. Larry G. Epstein & Igor Kopylov, 2007. "An axiomatic model of 'cold feet'," RCER Working Papers 533, University of Rochester - Center for Economic Research (RCER).
  15. Kopylov, Igor, 2009. "Finite additive utility representations for preferences over menus," Journal of Economic Theory, Elsevier, vol. 144(1), pages 354-374, January.
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