Ordered Reference Dependent Choice

Xi Zhi Lim

Abstract: This paper studies how violations of structural assumptions like expected utility and exponential discounting can be connected to basic rationality violations, even though these assumptions are typically regarded as independent building blocks in decision theory. A reference-dependent generalization of behavioral postulates captures preference shifts in various choice domains. When reference points are fixed, canonical models hold; otherwise, reference-dependent preference parameters (e.g., CARA coefficients, discount factors) give rise to "non-standard" behavior. The framework allows us to study risk, time, and social preferences collectively, where seemingly independent anomalies are interconnected through the lens of reference-dependent choice.

Date: 2021-05, Revised 2024-02
New Economics Papers: this item is included in nep-dcm and nep-upt
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