Referential Revealed Preference Theory

Hassan Nosratabadi

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: References can influence choice. One of the well-studied cases is when a decoy is added to the menu. However small in magnitude, decoy effect violates the weak axiom of revealed preferences (WARP). In order to explain the small deviation from the classical revealed preference theory, I decompose WARP into independent axioms in order to only remove the ones which are inconsistent with the this effect. This minimal deviation produces the referential revealed preference theory that keeps the strong predictive power offered in the classical theory while explaining the referential effect.

Keywords: Reference-Dependent Choice; Reference Preferences; Decoy Effect; Attraction Effect; WARP Decomposition (search for similar items in EconPapers)
JEL-codes: D11 D81 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2017-10-20
New Economics Papers: this item is included in nep-cbe, nep-mic and nep-upt
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Citations: View citations in EconPapers (4)

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Working Paper: Referential Revealed Preference Theory (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:201707

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