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Affective Decision Making: A Behavioral Theory of Choice

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    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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    Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1633R.

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    Length: 22 pages
    Date of creation: Nov 2007
    Date of revision: Apr 2009
    Publication status: Published in Games and Economic Behavior (2012) 75: 67-80
    Handle: RePEc:cwl:cwldpp:1633r
    Note: CFP 1356
    Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
    Phone: (203) 432-3702
    Fax: (203) 432-6167
    Web page: http://cowles.econ.yale.edu/

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    Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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    16. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
    17. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
    18. Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory And Anticipatory Feelings," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 55-79, February.
    19. Mercè Roca & Robin Hogarth & A. John Maule, 2005. "Ambiguity seeking as a result of the status quo bias," Economics Working Papers 882, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2006.
    20. B. Douglas Bernheim & Antonio Rangel, 2004. "Addiction and Cue-Triggered Decision Processes," American Economic Review, American Economic Association, vol. 94(5), pages 1558-1590, December.
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