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Choice with endogenous categorization

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  • Ellis, Andrew
  • Masatlioglu, Yusufcan

Abstract

We propose and axiomatize the categorical thinking model (CTM) in which the framing of the decision problem affects how agents categorize alternatives, that in turn affects their evaluation of it. Prominent models of salience, status quo bias, loss-aversion, inequality aversion, and present bias all fit under the umbrella of CTM. This suggests categorization is an underlying mechanism of key departures from the neoclassical model of choice. We specialize CTM to provide a behavioural foundation for the salient thinking model of Bordalo et al. (2013, Journal of Political Economy, 121, 803–843) that highlights its strong predictions and distinctions from other models.

Suggested Citation

  • Ellis, Andrew & Masatlioglu, Yusufcan, 2022. "Choice with endogenous categorization," LSE Research Online Documents on Economics 109787, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:109787
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    File URL: http://eprints.lse.ac.uk/109787/
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    References listed on IDEAS

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    Cited by:

    1. Andrew Ellis & Yusufcan Masatlioglu, 2022. "Choice with Endogenous Categorization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(1), pages 240-278.
    2. 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.

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    More about this item

    Keywords

    choice; categorization; salience;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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