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.