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Reference-dependent choice bracketing

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  • Pauline Vorjohann

    (Department of Economics, University of Exeter)

Abstract

I derive a theoretical model of choice bracketing from two behavioral axioms in an expected utility framework. The first behavioral axiom establishes a direct link between narrow bracketing and correlation neglect. The second behavioral axiom identifies the reference point as the place where broad and narrow preferences are connected. In my model, the narrow bracketer is characterized by an inability to process changes from the reference point in different dimensions simultaneously. As a result, her tradeoffs between dimensions are distorted. While she disregards interactions between actual outcomes, she appreciates these interactions mistakenly with respect to the reference point.

Suggested Citation

  • Pauline Vorjohann, 2023. "Reference-dependent choice bracketing," Discussion Papers 2309, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:2309
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    File URL: https://exetereconomics.github.io/RePEc/dpapers/DP2309.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    narrow bracketing; correlation neglect; reference dependence; axiomatic foundation;
    All these keywords.

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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