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Reason-Based Choice: A Bargaining Rationale for the Attraction and Compromise Effects

Among the most important and robust violations of rationality are the attraction and the compromise effects. The compromise effect refers to the tendency of individuals to choose an intermediate option in a choice set, while the attraction effect refers to the tendency to choose an option that dominates some other options in the choice set. This paper argues that both effects may result from an individual’s attempt to overcome the difficulty of making a choice in the absence of a single criterion for ranking the options. Moreover, we propose to view the resolution of this choice problem as a cooperative solution to an intra-personal bargaining problem among different selves of an individual, where each self represents a different criterion for choosing. We first identify a set of properties that characterize those choice correspondences that coincide with our bargaining solution, for some pair of preference relations. Second, we provide a revealed-preference foundation to our bargaining solution and characterize the extent to which these two preference relations can be uniquely identified. Alternatively, our analysis may be reinterpreted as a study of (inter-personal) bilateral bargaining over a finite set of options. In that case, our results provide a new characterization, as well as testable implications, of an ordinal bargaining solution that has been previously discussed in the literature under the various names of fallback bargaining, unanimity compromise, Rawlsian arbitration rule and Kant- Rawls social compromise.

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Paper provided by Brown University, Department of Economics in its series Working Papers with number 2009-4.

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Date of creation: 2009
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Handle: RePEc:bro:econwp:2009-4
Contact details of provider: Postal: Department of Economics, Brown University, Providence, RI 02912

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  1. Pierre-André Chiappori & Olivier Donni, 2006. "Learning from a Piece of Pie: the Empirical Content of Nash Bargaining," Cahiers de recherche 0619, CIRPEE.
  2. Yusufcan Masatlioglu & Daisuke Nakajima & Erkut Ozbay, 2009. "Revealed Attention," NajEcon Working Paper Reviews 814577000000000409, www.najecon.org.
  3. Kfir Eliaz & Michael Richter & Ariel Rubinstein, 2011. "Choosing the two finalists," Economic Theory, Springer, vol. 46(2), pages 211-219, February.
  4. Özgür Kıbrıs & Murat Sertel, 2007. "Bargaining over a finite set of alternatives," Social Choice and Welfare, Springer, vol. 28(3), pages 421-437, April.
  5. Christopher P. Chambers & Federico Echenique, 2015. "The Core Matchings of Markets with Transfers," American Economic Journal: Microeconomics, American Economic Association, vol. 7(1), pages 144-64, February.
  6. Kfir Eliaz & Ran Spiegler, 2006. "Contracting with Diversely Naive Agents," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 689-714.
  7. Gil Kalai & Ariel Rubinstein & Ran Spiegler, 2002. "Rationalizing Choice Functions By Multiple Rationales," Econometrica, Econometric Society, vol. 70(6), pages 2481-2488, November.
  8. repec:bla:restud:v:73:y:2006:i:3:p:689-714 is not listed on IDEAS
  9. Attila Ambrus & Kareen Rozen, 2008. "Rationalizing Choice with Multi-Self Models," Cowles Foundation Discussion Papers 1670, Cowles Foundation for Research in Economics, Yale University, revised May 2012.
  10. Anbarci, Nejat, 1993. "Noncooperative Foundations of the Area Monotonic Solutions," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 245-58, February.
  11. Nejat Anbarci, 2005. "Finite Alternating-Move Arbitration Schemes and the Equal Area Solution," Working Papers 0518, Florida International University, Department of Economics.
  12. Green, Jerry & Hojman, Daniel, 2007. "Choice, Rationality and Welfare Measurement," Working Paper Series rwp07-054, Harvard University, John F. Kennedy School of Government.
  13. Lombardi, Michele, 2009. "Reason-based choice correspondences," Mathematical Social Sciences, Elsevier, vol. 57(1), pages 58-66, January.
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