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Cognition in Seemingly Riskless Choices and Judgments

  • Louis Lévy-Garboua
  • Claude Montmarquette

The assumption of given and known preferences and possibilities so common in economic theory stands in contradiction with the kind of unsystematic change that charaterizes many experimental and real situations. Consequently the theory misspecifies rational choice and generates many puzzles relating to marginal analysis, sunk costs, judgments of fairness, the endowment effect, etc. We instillate rational cognition and learning in seemingly riskless choices and judgments. Preferences and possibilities are given in a stochastic sense and based on revisable expectations. The theory predicts experimental preference reversals and passes a sharp econometric test of the status quo bias drawn from a field study. En sciences économiques, l'hypothèse que les préférences et les possibilités sont connues et données est largement contredite par des changements peu systématiques observés dans plusieurs expériences et situations réelles. La conséquence est que la théorie ne semble pas spécifier correctement la rationalité des choix et pose aux économistes plusieurs paradoxes reliés à l'analyse marginale, aux coûts historiques, sur les jugements de justice, sur les effets de dotation ou de statu quo, etc. Dans cette étude, nous concidérons la rationalité cognitive et l'apprentissage dans des situations de choix et de jugements apparemment sans risque. Les préférences et les possibilités sont données dans un sens stochastique et elles sont basées sur les anticipations qui sont révisées. La théorie proposée prédit des renversements de préférence dans les expériences et passe avec succès un test économétrique sur données réelles du paradoxe du biais du statu quo.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 96s-01.

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Length: 24 pages
Date of creation: 01 Jan 1996
Date of revision:
Handle: RePEc:cir:cirwor:96s-01
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  1. Garboua, L.L. & Montmarquette, C., 1993. "Une etude econometrique de la demande de theatre sur donnees individuelles," Cahiers de recherche 9305, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. Gary S. Becker & Kevin M. Murphy, 1986. "A Theory of Rational Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 41, Chicago - Center for Study of Economy and State.
  3. Arkes, Hal R. & Blumer, Catherine, 1985. "The psychology of sunk cost," Organizational Behavior and Human Decision Processes, Elsevier, vol. 35(1), pages 124-140, February.
  4. Levy-Garboua, L. & Blondel, S., 1995. "La decision comme argumentation," Papiers du Laboratoire de Microéconomie Appliquée 1995-03, Université Panthéon-Sorbonne (Paris 1).
  5. Frey, Bruno S. & Pommerehne, Werner W., 1993. "On the fairness of pricing -- An empirical survey among the general population," Journal of Economic Behavior & Organization, Elsevier, vol. 20(3), pages 295-307, April.
  6. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
  7. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September.
  8. LEVY-GARBOUA, Louis & MONTMARQUETTE, Claude, 1997. "Reported Job Satisfaction : What Does It Mean?," Cahiers de recherche 9705, Universite de Montreal, Departement de sciences economiques.
  9. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  10. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
  11. Knetsch, Jack L & Sinden, J A, 1984. "Willingness to Pay and Compensation Demanded: Experimental Evidence of an Unexpected Disparity in Measures of Value," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 507-21, August.
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