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Bayesian Contextual Choices under Imperfect Perception of Attributes

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  • Junnan He

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

The classical rational choice theory proposes that preferences are context-independent, e.g. independent of irrelevant alternatives. Empirical choice data, however, display several contextual choice effects that seem inconsistent with rational preferences. We study a choice model with a fixed underlying utility function and explain contextual choices with a novel information friction: the agent's perception of the options is affected by an attribute-specific noise. Under this friction, the agent learns useful information when she sees more options. Therefore, the agent chooses contextually, exhibiting intransitivity, joint-separate evaluation reversal, attraction effect, compromise effect, similarity effect, and phantom decoy effect. Nonetheless, because the noise is attribute-specific and common across alternatives, the agent's choice is perfectly rational whenever an option clearly dominates others.

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  • Junnan He, 2021. "Bayesian Contextual Choices under Imperfect Perception of Attributes," Working Papers hal-03878378, HAL.
    • Handle: RePEc:hal:wpaper:hal-03878378
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03878378
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    References listed on IDEAS

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    Keywords

    Compromise effect; Context effect; Imperfect perception; Intransitive choices; Joint-separate evaluation reversal; Phantom decoy effect; Stable preferences.;
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