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No. 643: Revealed Preferences, Choices, and Psychological Indexes

Ivan Soraperra , University of Trento

April 1, 2009

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Abstract

This paper develops a model of choice that embeds some psychological aspects affecting decision maker's behaviour. In the model, the decision maker attaches an unobservable psychological index -representing, e.g., the level of perceived availability or the level of salience- to each alternative in a universal collection. Choice behaviour of the decision maker is then conditioned by the indexes attached to the alternatives. With this paper we show that, if the conditional choice behaviour satisfies two intuitively appealing properties -namely Monotonicity and Conditional IIA- then the observable part of the choice behaviour, i.e., the unconditional choices, can be interpreted as the product of the maximization of a preference relation. The paper discusses also some welfare consideration regarding the choice model and finally some interpretations of the indexes are provided.

J.E.L classification codes: D11

Keywords:Revealed preferences, Choice with frame, Salience, Scarcity bias, Bandwagon effect, Snob effect

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