Contrasting Reference-Dependent Choice Models (original) (raw)
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Some implications of Reference-Dependent Subjective Expected Utility model
2016
Rabin and Thaler (2001) declared Expected Utility an ex-hypothesis or a dead parrot alluding to the famous sketch from Monthy Pythons Flying Circus. Following Cox and Sadiraj (2006) and others, one should distinguish between Expected Utility (EU) theory (a purely mathematical theory based on axioms) and Expected Utility models (EU theory plus a given economic interpretation). The most prevalent EU model is one that assumes consequentialism (Rubinstein, 2012). Consequentialism states that the decision maker has a single binary preference relation comparing probability distributions over final wealth levels. Preference relations over wealth changes for different levels of wealth are derived from this single preference relation. EU theory plus consequentialism is referred to as the standard EU model. It is argued that most of the critique against EU is against the standard EU model, or against consequentialism. We replace consequentialism with reference-dependence, retaining the EU hyp...
2007
This study employs a Discrete Choice Experiment (DCE) in the health-care sector to test the loss aversion theory that is derived from reference-dependent preferences: The absolute subjective value of a deviation from a reference point is generally greater when the deviation represents a loss than when the same-sized change is perceived as a gain. As far as is known, this paper is the first to use a DCE to test the loss aversion theory. A DCE is a highly suitable tool for such testing because it estimates the marginal valuations of attributes, based on deviations from a reference point (a constant scenario). Moreover, loss aversion can be examined for each attribute separately. Another advantage of a DCE is that is can be applied to non-traded goods with non-tangible attributes. A health-care event is used for empirical illustration: The loss aversion theory is tested within the context of preference structures for maternity-ward attributes, estimated using data gathered from 3850 observations made by a sample of 542 women who had recently given birth. Seven hypotheses are presented and tested. Overall, significant support for behavioral loss aversion theories was found.
Communication on the paper ‘‘A reference-dependent regret model for deterministic tradeoff studies’’
Systems Engineering, 2008
This communication focuses on a fundamental problem related to the recently introduced Reference-Dependent Regret Model (RDRM) [Kujawski, 2005] for deterministic multicriteria decision making. In [Kujawski, 2005] it was asserted that the RDRM model satisfies three properties. The first of these properties, referred to as the "independence of dominated alternatives", seems to be an intuitive one. According to this property, the RDRM model preserves the ranking of two alternatives A i and A j with ranking A i A f j when a new alternative dominated by A i is introduced or an old alternative dominated by A j is dropped. In this communication it is demonstrated algebraically and also by means of a numerical example that the RDRM model may fail to satisfy this property. The implication is that when the concepts of regret and/or rejoicing are considered and defined in terms of all the available alternatives in accordance with the RDRM, adding or dropping a dominated alternative can change the ranking of the alternatives and violate the independence of dominated alternatives property.
Loss Aversion in Riskless Choice: A Reference-Dependent Model
The Quarterly Journal of Economics, 1991
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The role of the reference alternative in the specification of asymmetric discrete choice models
2011
Within the discrete choice modelling literature, there has been growing interest in including reference alternatives within stated choice survey tasks. Recent studies have investigated asymmetric utility specifications by estimating discrete choice models that include different parameters according to gains and losses relative to the values of the reference attributes. This paper analyses asymmetric discrete choice models by comparing specifications expressed as deviations from the reference point and specifications expressed in absolute values. The results suggest that the selection of the appropriate asymmetric model specification should be based on the type of the stated choice experiment.
Reference-dependent subjective expected utility
Journal of Economic Theory, 2003
A reference-dependent generalisation of subjective expected utility theory is presented. In this theory, preferences between acts depend both on final outcomes and on reference points (which may be uncertain acts). It is characterised by a set of axioms in a Savage-style framework. A restricted form of the theory separates attitudes to end states (encoded in a 'satisfaction function') from attitudes to gains and losses of satisfaction. Given weak additional assumptions, the restricted theory excludes cycles of choice, explains observed disparities between willingness-to-pay and willingness-to-accept valuations of lotteries, and predicts preference reversal. r
Choice behavior, asset integration and natural reference points
2006
Abstract. Reference points play a major role in differentiating theories of choice under uncertainty. Under expected utility theory the reference point is implicit in the assumptions made about asset integration, which is the same thing as assuming different arguments of the utility function. Under prospect theory the reference point differentiates gains and losses, and the manner in which prospects are evaluated.
Economy of referential preferences
Ssrn Electronic Journal, 2012
In this paper we introduce basic notions of a new economic model where preference relations on commodities set are represented by a group action on Euclidean space instead of utility function. Conditions that ensure the existence of individual demand function and a general equilibrium in the setting of exchange economy are examined.
Journal of Decision Systems, 2018
A fundamental and widely applied approach to decision-making is the multi-attribute utility theory. Because it aggregates preferences in the compensatory manner, it can be extended with the concept of veto function, which is adopted from the outranking approach, and models full or partial non-compensation of unsatisfactory preferences. This paper discusses the methodological foundations underlying this approach, and introduces the mechanisms of decision support on the basis of utility models with discordance-related information. It then presents the main contribution of the research, in which the forms and properties of veto functions are studied, particularly with respect to risk aversion. Outcomes of risk averse, risk seeking and risk neutral veto functions are analysed and compared. Risk aversion of veto functions is also correlated with risk aversion of utility functions, which are aggregated in the same multi-attribute model and exhibit common complementary preference structures of the decision-maker. The study aims to assess the influence of risk aversion on the decision, to identify possible anomalies in preference structures, to determine the suitability of different risk aversion formats and intensities for various problem settings, and to derive key characteristics. The experimental model considers several evaluation factors, such as validity of results, ability to efficiently discriminate alternatives, richness of output data, extremeness of results and robustness.