Entangled vs. Separable Choice

Victor Aguiar ()
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Victor Aguiar: Simon Fraser University, https://sites.google.com/site/vhaguiar/

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: We investigate joint probabilistic choice rules describing the behavior of two decision makers, each facing potentially distinct menus. These rules are separable when they can be decomposed into individual choices correlated solely through their respective probabilistic choice rules. Despite its significant interest for the study of peer effects, influence, and taste variation, a complete characterization of these rules has remained elusive (Chambers, Masatlioglu, and Turansick, 2021). We fully characterize separable choices through a finite system of inequalities inspired by Afriat's theorem. Our results address the possibility of entangled choices, where decision makers behave as if they do not communicate, yet their choices are not separable. More generally, we establish that separable joint choice restrictions can be factored into individual choice restrictions if only if at least one decision maker's probabilistic choice rule uniquely identifies the distribution over deterministic choice rules. The no communication condition and the individual restrictions are no longer sufficient in the absence of this uniqueness. Our results offer robust tools for distinguishing between separable decision-making and behaviors beyond mere peer effects such as imitation and cheating.

Date: 2024-07
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