A Ratio-Difference Theory of Choice: An Article Written to Honor Richard Hollis Day

Mina Mahmoudi, Mark Pingle and Rattaphon Wuthisatian

Review of Behavioral Economics, 2022, vol. 9, issue 2, 155-171

Abstract: We humans find it difficult to comprehend the magnitude of one thing without comparing the magnitudes of two things. When we compare two magnitudes, we tend to use ratios and differences. This suggests a procedural theory of decision making should contain the possibility of using ratios and differences in the process. Here, we present a “ratio-difference†theory of decision-making. We illustrate that a procedural decision theory that gives weight to ratio comparisons and difference comparisons has the potential to not only provide standard choice theory conclusions but also explain a number of decision anomalies.

Keywords: Decision theory; bounded rationality; ratio; difference; risk aversion (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:now:jnlrbe:105.00000151

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