IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v105y2015i1p299-321.html
   My bibliography  Save this article

Revealed (P)Reference Theory

Author

Listed:
  • Efe A. Ok
  • Pietro Ortoleva
  • Gil Riella

Abstract

This paper develops axiomatically a revealed preference theory of reference-dependent choice behavior. Instead of taking the reference for an agent as exogenously given in the description of a choice problem, we suitably relax the Weak Axiom of Revealed Preference to obtain, endogenously, the existence of reference alternatives as well as the structure of choice behavior conditional on those alternatives. We show how this model captures some well-known choice patterns such as the attraction effect. (JEL D11, D81)

Suggested Citation

  • Efe A. Ok & Pietro Ortoleva & Gil Riella, 2015. "Revealed (P)Reference Theory," American Economic Review, American Economic Association, vol. 105(1), pages 299-321, January.
    • Handle: RePEc:aea:aecrev:v:105:y:2015:i:1:p:299-321
    Note: DOI: 10.1257/aer.20111046
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.20111046
    Download Restriction: no
    File URL: https://www.aeaweb.org/aer/ds/10501/20111046_ds.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    References listed on IDEAS

    as
    1. Ortoleva, Pietro, 2010. "Status quo bias, multiple priors and uncertainty aversion," Games and Economic Behavior, Elsevier, vol. 69(2), pages 411-424, July.
    2. Herne, Kaisa, 1997. "Decoy alternatives in policy choices: Asymmetric domination and compromise effects," European Journal of Political Economy, Elsevier, vol. 13(3), pages 575-589, September.
    3. Ariel Rubinstein & Yuval Salant, 2006. "Two Comments on the Principle of Revealed Preference," Levine's Bibliography 321307000000000272, UCLA Department of Economics.
    4. Apesteguia, Jose & Ballester, Miguel A., 2013. "Choice by sequential procedures," Games and Economic Behavior, Elsevier, vol. 77(1), pages 90-99.
    5. Huber, Joel & Payne, John W & Puto, Christopher, 1982. "Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 9(1), pages 90-98, June.
    6. Enrico Diecidue & Jeroen van de Ven, 2008. "Aspiration Level, Probability Of Success And Failure, And Expected Utility," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 683-700, May.
    7. , & ,, 2012. "Reason-based choice: a bargaining rationale for the attraction and compromise effects," Theoretical Economics, Econometric Society, vol. 7(1), January.
    8. Emir Kamenica, 2008. "Contextual Inference in Markets: On the Informational Content of Product Lines," American Economic Review, American Economic Association, vol. 98(5), pages 2127-2149, December.
    9. Chateauneuf, Alain & Wakker, Peter, 1999. "An Axiomatization of Cumulative Prospect Theory for Decision under Risk," Journal of Risk and Uncertainty, Springer, vol. 18(2), pages 137-145, August.
    10. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    11. Sagi, Jacob S., 2006. "Anchored preference relations," Journal of Economic Theory, Elsevier, vol. 130(1), pages 283-295, September.
    12. Janet A. Schwartz & Gretchen B. Chapman, 1999. "Are More Options Always Better?," Medical Decision Making, , vol. 19(3), pages 315-323, August.
    13. Ian J. Bateman & Alistair Munro & Gregory L. Poe, 2008. "Decoy Effects in Choice Experiments and Contingent Valuation: Asymmetric Dominance," Land Economics, University of Wisconsin Press, vol. 84(1), pages 115-127.
    14. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1039-1061.
    15. Highhouse, Scott, 1996. "Context-Dependent Selection: The Effects of Decoy and Phantom Job Candidates," Organizational Behavior and Human Decision Processes, Elsevier, vol. 65(1), pages 68-76, January.
    16. Evren, Özgür & Ok, Efe A., 2011. "On the multi-utility representation of preference relations," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 554-563.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tserenjigmid, Gerelt, 2019. "Choosing with the worst in mind: A reference-dependent model," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 631-652.
    2. Castillo, Geoffrey, 2020. "The attraction effect and its explanations," Games and Economic Behavior, Elsevier, vol. 119(C), pages 123-147.
    3. Özgür Kıbrıs & Yusufcan Masatlioglu & Elchin Suleymanov, 2023. "A theory of reference point formation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(1), pages 137-166, January.
    4. Hassan Nosratabadi, 2017. "Referential Revealed Preference Theory," Departmental Working Papers 201707, Rutgers University, Department of Economics.
    5. Efe A. Ok & Pietro Ortoleva & Gil Riella, 2011. "Theory of Product Differentiation in the presence of the Attraction Effect," Working Papers 2011-3, Princeton University. Economics Department..
    6. Guney, Begum & Richter, Michael & Tsur, Matan, 2018. "Aspiration-based choice," Journal of Economic Theory, Elsevier, vol. 176(C), pages 935-956.
    7. Fabio Galeotti & Maria Montero & Anders Poulsen, 2022. "The Attraction and Compromise Effects in Bargaining: Experimental Evidence," Management Science, INFORMS, vol. 68(4), pages 2987-3007, April.
    8. Georgios, Gerasimou, 2013. "A Behavioural Model of Choice in the Presence of Decision Conflict," SIRE Discussion Papers 2013-25, Scottish Institute for Research in Economics (SIRE).
    9. Roee Teper, 2010. "Probabilistic Dominance and Status Quo Bias," Working Paper 5864, Department of Economics, University of Pittsburgh.
    10. Riella, Gil & Teper, Roee, 2014. "Probabilistic dominance and status quo bias," Games and Economic Behavior, Elsevier, vol. 87(C), pages 288-304.
    11. Sürücü, Oktay & Djawadi, Behnud Mir & Recker, Sonja, 2019. "The asymmetric dominance effect: Reexamination and extension in risky choice – An experimental study," Journal of Economic Psychology, Elsevier, vol. 73(C), pages 102-122.
    12. Sürücü, Oktay & Brangewitz, Sonja & Mir Djawadi, Behnud, 2017. "Asymmetric dominance effect with multiple decoys for low- and high-variance lotteries," Center for Mathematical Economics Working Papers 574, Center for Mathematical Economics, Bielefeld University.
    13. David M. Harrison & Kimberly F. Luchtenberg & Michael J. Seiler, 2023. "Improving Mortgage Default Collection Efforts by Employing the Decoy Effect," The Journal of Real Estate Finance and Economics, Springer, vol. 66(4), pages 840-860, May.
    14. Guney, Begum & Richter, Michael, 2018. "Costly switching from a status quo," Journal of Economic Behavior & Organization, Elsevier, vol. 156(C), pages 55-70.
    15. Zuzana Gocmanová & Jaromír Skorkovský & Štěpán Veselý & Jan Böhm, 2019. "Where Do You Want to Go Skiing? The Effect of the Reference Point and Loss Aversion," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 67(1), pages 243-252.
    16. Nosratabadi, Hassan, 2022. "Reference-dependent choice under plurality rule," Mathematical Social Sciences, Elsevier, vol. 115(C), pages 88-98.
    17. Heydari, Pedram, 2021. "Luce arbitrates: Stochastic resolution of inner conflicts," Games and Economic Behavior, Elsevier, vol. 126(C), pages 33-74.
    18. Georgios Gerasimou, 2016. "Partially dominant choice," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 61(1), pages 127-145, January.
    19. William M. Hedgcock & Raghunath Singh Rao & Haipeng (Allan) Chen, 2016. "Choosing to Choose: The Effects of Decoys and Prior Choice on Deferral," Management Science, INFORMS, vol. 62(10), pages 2952-2976, October.
    20. Dean, Mark & Kıbrıs, Özgür & Masatlioglu, Yusufcan, 2017. "Limited attention and status quo bias," Journal of Economic Theory, Elsevier, vol. 169(C), pages 93-127.

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:105:y:2015:i:1:p:299-321. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.