DP7414 Reason-Based Choice: A Bargaining Rationale for the Attraction and Compromise Effects
|Author(s):||Geoffroy de Clippel, Kfir Eliaz|
|Publication Date:||August 2009|
|Keyword(s):||Attraction Effect, Bounded Rationality, Compromise Effect, Cooperative Bargaining, Fallback Bargaining, Reason-based-choice|
|JEL(s):||C71, C78, D03, D11|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=7414|
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.