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A Multi-Level Choice Theory

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  • Raul V. Fabella

    () (School of Economics, University of the Philippines Diliman)

Abstract

The Great Recession has called into question many tenets of Neo-classical Microeconomics. Neo-classical theory allows each agent only one fixed type, homo economicus, while not denying other possible types as in adverse selection.We propose that economic agents not only choose their market basket but also their types. Agents are members of groups and each group has social norms to which the agent more or less conforms. His/her market behavior trades off private well being which responds to prices but also social well being which responds to norms. We show how deviation from norms are determined. We also discuss other anomalies in the light of this model.

Suggested Citation

  • Raul V. Fabella, 2010. "A Multi-Level Choice Theory," UP School of Economics Discussion Papers 201012, University of the Philippines School of Economics.
  • Handle: RePEc:phs:dpaper:201012
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    File URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/viewFile/668/131
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    1. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
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