Barbos, Andrei (2008): A Reference Dependent Representation with Subjective Tastes.
This is the latest version of this item.

PDF
MPRA_paper_24141.pdf Download (342kB)  Preview 
Abstract
Experimental and empirical evidence documents instances where the presence of an inferior option in a menu increases the attractiveness of the better options from that menu and thus distorts the normative ranking across menus. We analyze the case when besides this so called context effects bias there is also a concern for flexibility in the spirit of the literature initiated by Kreps (1979) and Dekel, Lipman and Rustichini (2001). Since the context effects bias and the desire for flexibility both increase the inclination of a decision maker to choose larger menus, the analysis allows the disentangling of the effect of the behavioral bias from the effect of the rational desire from flexibility. We find a weak condition on the set of ex post preferences under which the two effects are identifiable. We show that our representation is essentially unique. From a pedagogical viewpoint, our paper provides a novel methodology of identifying probabilities on the state space of subjective uncertainty introduced by Dekel, Lipman and Rustichini (2001) when this state space is infinite. This method renders the infinite state space essentially finite with respect to a certain salient property.
Item Type:  MPRA Paper 

Original Title:  A Reference Dependent Representation with Subjective Tastes 
Language:  English 
Keywords:  Context Effects; Reference Point Bias; Subjective Uncertainty 
Subjects:  D  Microeconomics > D8  Information, Knowledge, and Uncertainty > D81  Criteria for DecisionMaking under Risk and Uncertainty 
Item ID:  24141 
Depositing User:  Andrei Barbos 
Date Deposited:  30. Jul 2010 06:14 
Last Modified:  28. Feb 2013 19:16 
References:  Aliprantis, C., and K. Border (1999): Infinite Dimensional Analysis. Berlin, Germany: SpringerVerlag. Barbos, A. (2009): "Context Effects: A Representation of Choices from Categories," forthcoming, Journal of Economic Theory. Chatterjee, K. and R. V. Krishna (2009a): "On preferences with infinitely many subjective states," Economic Theory, forthcoming. Chatterjee, K. and R. V. Krishna (2009b): "A 'Dual Self' Representation for Stochastic Temptation," American Economic Journal: Microeconomics, 1, 148167. Dekel, E. and B. Lipman and A. Rustichini (2001): "Representing Preferences with a Unique Subjective State Space," Econometrica , 69, 891934. Dekel, E. and B. Lipman and A. Rustichini (2009): "Temptation Driven Preferences," Review of Economic Studies, 76, 937971. Dekel, E. and B. Lipman, A. Rustichini and T. Sarver (2007): "Representing Preferences with a Unique Subjective State Space: Corrigendum," Econometrica, 75, 591600. Epstein, L.G., and I. Kopylov (2007): "Cold Feet," Theoretical Economics, 2, 231259. Gul, F., and W. Pesendorfer (2001): "Temptation and SelfControl," Econometrica, 69, 14031435. Kopylov, I. (2009): "Finite Additive Utility Representations for Preferences over Menus," Journal of Economic Theory, 144,354374. Kopylov, I., and J. Noor (2009): "SelfDeception and Choice," mimeo, Boston University. Kreps, D.M. (1979): "A Representation Theorem for 'Preference for Flexibility'," Econometrica, 47, 565576. Neilson, W. (2006): "Axiomatic ReferenceDependence in Behavior Towards Others and Toward Risk," Economic Theory, 28, 681692. Ok, E.A., P. Ortoleva, G. Riella (2009): "Revealed (p)reference theory", mimeo, New York University. Royden, H.L. (1988): Real Analysis, 3rd edition, NJ: Prentice Hall. Sarver, T. (2008): "Anticipating Regret: Why Fewer Options May Be Better," Econometrica, 76, 263305. Simonson, I. and A. Tversky (1992): "Choice in Context: Tradeoff Contrast and Extremeness Aversion," Journal of Marketing Research, 29, 281295. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/24141 
Available Versions of this Item

A Reference Dependent Representation with Subjective Tastes. (deposited 13. Jul 2010 09:06)
 A Reference Dependent Representation with Subjective Tastes. (deposited 30. Jul 2010 06:14) [Currently Displayed]