Working Paper: CEPR ID: DP7414
Authors: Geoffroy Declippel; Kfir Eliaz
Abstract: This paper proposes a model of boundedly rational choice that explains the well known attraction and compromise effects. Choices in our model are interpreted as a cooperative solution to a bargaining problem among an individual?s conflicting dual selves. We axiomatically characterize a unique bargaining solution that captures both effects when the selves? preferences are known. We then provide a revealed preference foundation to our solution, and characterize the extent to which these two underlying preference relations can be uniquely identified.
Keywords: attraction effect; bounded rationality; compromise effect; cooperative bargaining; fallback bargaining; reason-based choice
JEL Codes: C71; C78; D03; D11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| dominated alternative (Q42) | choice probability of dominating alternative (D79) |
| extreme alternative (Y60) | choice probability of intermediate alternative (D79) |
| structure of decision-making process (D70) | observed choice behavior (D01) |