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.