Context Effects: A Representation of Choices from Categories

29 Pages Posted: 7 Feb 2010

See all articles by Andrei Barbos

Andrei Barbos

University of South Florida - College of Business Administration - Department of Economics

Date Written: September 28, 2009

Abstract

This paper studies a model of reference-dependent choice from sets of options grouped into categories. The proposed model is consistent with experimental evidence documenting context effects in a variety of choice situations. In our model, the reference point for any given category is subjective, and corresponds to the least preferred element in the category under consideration. Every object in a category is evaluated relative to the corresponding reference point; this may distort the objective ranking of options across different categories, and thus possibly give rise to a context-effects bias. The resulting representation is essentially unique. We also provide an economic application of the preferences that we axiomatize to principal agent models. We show how sellers facing consumers exhibiting the context-effects bias can increase their profits by exploiting their bounded rationality.

Keywords: Context Effects, Reference Point Bias, Choice from Categories, Behavioral Economics

JEL Classification: D11

Suggested Citation

Barbos, Andrei, Context Effects: A Representation of Choices from Categories (September 28, 2009). Available at SSRN: https://ssrn.com/abstract=1548584 or http://dx.doi.org/10.2139/ssrn.1548584

Andrei Barbos (Contact Author)

University of South Florida - College of Business Administration - Department of Economics ( email )

4202 E. Fowler Avenue
BSN 3403
Tampa, FL 33620
United States
813-974-6514 (Phone)
813-974-6510 (Fax)

HOME PAGE: http://sites.google.com/site/andreibarbos/

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
54
Abstract Views
563
Rank
675,887
PlumX Metrics